In December 2022, as part of the government’s year-end spending bill, the SECURE 2.0 Act of 2022 was signed into law by the President. This Act permits an additional type of qualified distribution for 529 plan assets by allowing limited tax and penalty-free 529 plan rollovers to Roth IRA accounts 1/1/2024. This increased flexibility may help to address the needs of account owners whose beneficiaries do not pursue higher education or who have leftover funds within their 529 account due to their beneficiary receiving a scholarship. There are several key provisions of the Act as it relates to these rollovers, including:

• The 529 account must have been open for more than 15 years
• The eligible rollover amount must have been in the 529 account for at least 5 years
• The annual rollover limit is subject to Roth IRA annual contribution limits ($6,500 for 2023; $7,500 for individuals age 50 and older)
• There is a lifetime rollover limit of $35,000 for each 529 account beneficiary
• Rollovers can only be made to the Roth IRA account owned by the named 529 account beneficiary
• Note that Roth IRA income limits do not apply for this type of contribution

This enhancement became effective January 1, 2024. As a reminder, funds within 529 plans can be used to cover many different education-related expenses which are summarized here and account owners have the ability to transfer a 529 account to another qualifying family member without incurring taxes or penalties. Please see the Offering Statement for additional information. The 529 industry is continuing to examine and work through aspects of the SECURE 2.0 Act legislation, including clarifications and operational items, and additional information will be provided as it becomes available. In addition, whether a 529 rollover to a Roth is also a qualified distribution for state taxes will depend on each state.