The College Savings Plans Network has been working to expand awareness of the college savings plans and has encouraged legislation that broadens the allowable uses for 529 funds. Congress, for instance, has expanded the permissible use of 529 funds to allow families to save for educational expenses other than college costs, like tuition for kindergarten through Grade 12, as well as for apprenticeships. Plus, up to $10,000 from a 529 can now be used to repay student loans.
Starting next year, under the Secure 2.0 Act enacted in 2022, “leftover” funds in a 529 plan can be rolled over into a Roth individual retirement account for the 529’s beneficiary. This is helpful, Ms. Lucina said, because some families may balk at contributing to a 529 out of fear that they will owe taxes and a penalty if they have not spent all the funds in the account — say, because their child doesn’t go to college — and they withdraw the money for other purposes.
“People get worried about over-funding the 529,” she said.
Under the new law, up to $35,000 can be transferred from a 529 to a Roth I.R.A. You can transfer up to the annual maximum Roth contribution — currently $6,500 for people under 50 — each year. If you have more than that left over, you would have to transfer it over a period of years.
Other rules apply: The 529 account, for instance, must have been open for at least 15 years, and no contributions or earnings from the last five years can be transferred.
Still, if you don’t meet the rules for a Roth rollover, you may avoid paying taxes and penalties by changing the 529 account’s beneficiary to a sibling or another family member.