President Biden signed the SECURE Act 2.0 into law on December 29, 2022. Under certain conditions, Section 126 of the Act will amend the IRS Code to allow tax and penalty free rollovers from 529 accounts to Roth IRAs.
Under this Section, a beneficiary of a 529 account is permitted to rollover up to $35,000 over their lifetime from any 529 account in their name to a Roth IRA. These rollovers will be subject to Roth IRA annual contribution limits, and the 529 account must have been open for more than 15 years.
There has been a decline in 529 accounts because families are worried about needing to take non-qualified withdrawals of leftover funds within the account, thus incurring a penalty. Section 126 will provide individuals with an option to make better use of leftover funds within a 529 account. Section 126 will become effective with respect to distributions after December 31, 2023.
This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.
Elizabeth M. Siefker is an attorney at Fraser Trebilcock in the trusts and estates practice group focusing on estate planning, elder law, and business planning. You can reach her at firstname.lastname@example.org, or at 517.377.0801.