Articles from The Mediator

Tax Stuff: A New Use for 529s

529 accounts are a great way to save money for a child’s education. This is because once you put money in, it’s never taxed, as long as it is used for specific purposes, such as tuition, room and board.

Believe it or not, some 529 savers have a happy problem once the beneficiary completes their education: unused funds. But if they simply withdraw the funds, taxes and penalties are assessed.

Starting in 2024 there is a new solution. Extra 529 funds can be rolled over tax-free to a Roth IRA for the beneficiary. This can become a significant sum decades later when the beneficiary retires, as these monies will compound for all those years tax-free.

Of course, there are limits. You can roll over up to $6,500 annually with a total maximum rollover of $35,000. So to roll the full $35,000 over, it takes six years. Finally, the owner of the new Roth IRA must be the same as the 529 beneficiary, and they must have income of at least the amount rolled over each year.

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