Recently, there has been some changes made in the Internal Revenue Code that will answer a lot of common questions that surround 529s and why some people may be deterred from contributing to them.
These questions are usually, “What if my children don’t go to college? What if they get a scholarship? What if we don’t use it all?"
Starting in 2024, those questions will be a thing of the past.
This new legislation will allow leftover 529 account balances to be rolled over into a Roth IRA for retirement purposes. This is a huge upgrade for 529s because it essentially allows people to save for college education & retirement in one account without worrying about overfunding the account and having to deal with any withdrawal penalties.
Another benefit to the 529 update, is that there are no income limitations on contributions or rollovers as there are with Roth IRAs. Roth IRAs are so powerful because the contributions grow tax free. Because of this, if you make over $153,000 (Single) or $228,000 (Married) you cannot contribute directly to one. What makes this new piece of legislation so significant is that 529s operate the same as a Roth IRA, by utilizing tax free growth but they do NOT have any income limitations. Folks, who make more than those income limitation can now begin to think about contributing to a 529 for retirement purposes rather than solely education.