Kids change their minds a lot, so it’s understandable parents might be nervous to lock away money in a college savings plan. After all, what if your child decides to skip college or drop out? That money could’ve been spent elsewhere.
You can worry less now. That unused money earmarked for education can soon be rescued.
“People with unused college savings will potentially be able to roll over those funds into retirement savings rather than having to withdraw them and incur tax penalties,” said Keith Namiot, chief operating officer with financial services provider Equitable Group Retirement.
What’s changed with tuition savings, or 529, plans?
The $1.7 trillion federal omnibus spending package passed late last year has a provision that allows tax-free rollovers of up to $35,000 in 529 tuition savings plans to Roth individual retirement accounts starting in 2024.
The rollovers can only begin if the money has been in a 529 for at least 15 years. The amount is also subject to annual Roth IRA limits. The contribution limit for 2024 is set at $6,500, with an extra $1,000 catch-up allowance for people over 50.
Under current rules, leftover money must stay in a 529 plan and be used toward qualified education expenses or else be withdrawn and charged a 10% penalty and federal income tax on the earnings. Sure, you could change the beneficiary to another family member, like a grandchild, niece or nephew, sibling, or even yourself, but let’s face it, maybe you…
