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What is the new 529 rule in 2024?

“Starting in 2024, the SECURE 2.0 Act allows savers to roll unused 529 funds into the beneficiary's Roth IRA without a tax penalty,” says Lawrence Sprung, author of Financial Planning Made Personal and founder of Mitlin Financial in Hauppauge, New York.
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What is changing with 529 plans?

Along with other retirement account changes, the law introduces another use for excess 529 funds: retirement. When the law goes into effect in January 2024, up to a lifetime maximum of $35,000 can be transferred to a Roth individual retirement account (Roth IRA) in the name of the 529 account's beneficiary.
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What is the new rule for 529 plans to Roth IRAs?

One feature of the 2022 legislation that received a significant amount of attention was a provision allowing for tax-free rollovers from Section 529 accounts to Roth IRAs. Starting in 2024, beneficiaries of 529 college savings accounts are permitted to do a tax-free rollover to a Roth IRA.
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How does Secure Act 2.0 change the rules for 529 plans?

How will SECURE Act 2.0 affect 529 plans? SECURE 2.0 allows funds from an established 529 account to be transferred tax-free to a Roth IRA for the beneficiary of the 529 account. Now, unused educational funds have the potential to kickstart a beneficiary's Roth IRA savings. This change, however, comes with limitations.
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What is the 5 year rule for 529 plans?

The 5-Year Election

Individuals may contribute as much as $90,000 to a 529 plan in 2024 ($85,000 in 2023) if they treat the contribution as if it were spread over a five-year period. The 5-year election must be reported on Form 709 for each of the five years.
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Big Changes are Happening to 529 Plans in 2024

Can I convert my 529 to a Roth IRA?

The 529 education savings plan is getting a lot more interesting in 2024. Starting this year, unused money in a 529 plan can be converted into a Roth IRA, eliminating one of the major defects in the education savings plan: the possibility of money being stranded there.
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When should you stop contributing to a 529?

529 college savings plans do not have contribution deadlines. You may contribute to a 529 plan at any time throughout the year, and you do not have to stop making contributions once the beneficiary reaches a certain age.
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What are the changes in SECURE Act 2.0 2024?

PRE-2024: Law imposes a 10% penalty on early withdrawals before normal retirement age from tax-preferred retirement accounts. 2024: Allows one penalty-free withdrawal of up to $1,000 per year for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.”
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How many times per year can a 529 plan account holder move funds?

If you are able to transfer ownership, you can typically do it penalty-free only once during a 12-month period. If you transfer again, it would be considered a nonqualified distribution and would incur a penalty and have federal income tax implications.
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What are the benefits of 529 plans in 2024?

Starting in 2024, families can roll unused 529 plan funds to the account beneficiary's Roth individual retirement account, without triggering income taxes or penalties, as long as the 529 plan has been open for at least 15 years.
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What is the 15 year rule for 529 plans?

You need to have owned the 529 for at least 15 years before you can execute a rollover. Contributions made to the 529 plan in the last five years before distributions start—including the associated earnings—are ineligible for a tax-free rollover. Annual limits.
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Can I transfer my 529 to my child?

One is to transfer or roll over the 529 account to a new beneficiary. To be an income tax-free rollover, that person must be a member of the original beneficiary's family, such as siblings (including stepsiblings), parents, spouse, children, first cousins, nieces and nephews.
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What is the 529 loophole?

The updated FAFSA does not require students to report cash support manually. That means a grandparent-owned 529 plan will not have any impact on need-based financial aid eligibility. Some have now referred to this as the “grandparent loophole.”
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What's a disadvantage of 529 plans?

5 disadvantages of a 529 college savings plan
  • Investment choices can be limited.
  • Not all 529 plans are the same.
  • You might easily trigger a penalty.
  • 529s count against you for federal aid.
  • Contributions and fees can be high.
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Are there any disadvantages to 529 plan?

Limited control on how money gets invested

If you're interested in investing on your own without the help of an advisor, a 529 plan may not be right for you. 529 plans don't allow for self-directed investments, meaning you don't get as much control over what you're investing in.
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What happens to 529 if child doesn't go to college?

You might fund a 529 plan to have money available for your children's college. If they decide not to go to college, there are still ways to put that money to good use. You might consider using the money for education other than college, or earmark it for other beneficiaries.
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Does contributing to a 529 reduce taxable income?

1. 529 Plans Offer Unsurpassed Income Tax Breaks. Although a contribution to a 529 plan is not an income tax deduction, earnings in a 529 plan grow federal tax-free and are not taxed when you withdraw the money to pay for numerous college and other qualified education expenses.
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What happens to 529 when child turns 21?

Their main advantage: 529 investments grow free from federal or state tax. While originally conceived as a way to save for college, 529 plan funds can now go to a wider array of programs and institutions. There are no age limits for recipients and money can be held in the plans indefinitely.
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What is the hardship withdrawal for 2024?

Penalty-free withdrawals for emergencies

The withdrawal may be subject to income tax, and those under age 59½ typically owe a 10% tax penalty. Starting in 2024, you can make one withdrawal of $1,000 per year to cover personal and family emergency expenses without owing the 10% penalty.
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What are the SIMPLE IRA changes for 2024?

Other Retirement Plan Contribution Changes for 2024

The contribution limits for SIMPLE IRA and SIMPLE 401(k) will also rise. From $15,500 in 2023, the limit will increase to $16,000 in 2024. SEP-IRA contribution limits will increase to $69,000 per year for 2024, up from $66,000 in 2023.
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How to calculate RMD for 2024?

To calculate your required minimum distribution for the current year, you divide your account balance at the end of the last year by your life expectancy. The IRS provides tables that show you which life expectancy numbers to use based on your age and if you are sharing your RMD with a spouse.
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How the wealthy use 529 plans?

There are two main provisions that allow the wealthy to build multi-generational 529 plans. Front-loading funding can put more money into an account quickly, while painless beneficiary changes allow that money to be used for many kids and grandkids.
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Are 529 plans still a good idea?

Every state offers one or more 529 plans, and most provide tax breaks if you invest in them. However, you don't have to invest in your own state's plan. 529 plans have some risks, but they're still one of the best and easiest ways to invest for your child's education.
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What happens to a 529 account when the child turns 18?

There are no time or age limits on using a state 529 college savings plan. Money can be kept in a 529 plan indefinitely. 529 plans can be used for graduate school, not just undergraduate school, and can be passed on to one's children. There is also no age limit on contributions to a 529 plan.
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