The SECURE Act 2.0 - Steven Evensen

The SECURE Act 2.0 and its Impact on 529 Plans and ABLE Accounts: What You Need to Know

The SECURE Act 2.0, set to begin in January 2024, brings some substantial changes to both 529 savings plans and ABLE accounts. Here's an in-depth look at what these changes entail and what they could mean for your financial planning strategy.

1. Transferring 529 Plans to Roth IRAs

The Act's most notable change regarding 529 plans is the provision allowing funds from an established 529 account to be transferred tax-free to a Roth IRA for the same beneficiary. This option to repurpose unused educational funds for retirement could significantly influence financial planning strategies.

However, this change comes with specific limitations:

·??????Account Age: The 529 account must have been open for at least 15 years.

·??????Same Beneficiary Requirement: The beneficiary of both the 529 account and the Roth IRA must be the same person.

·??????Rollover Limitations:

o??Annual Rollovers: Subject to yearly IRA contribution limits, minus any other IRA contributions made during the year.

·??????Lifetime Limit: Aggregate rollover limit of $35,000 per beneficiary.

·??????Recent Contributions Exclusion: Rollovers may not include contributions or earnings made in the last 5 years.

The IRS has yet to provide further guidance, leaving some aspects of this new provision unclear. Consultation with a financial advisor or tax professional may be necessary as more information becomes available.

2. Expanded Eligibility for ABLE Accounts

ABLE accounts have been a valuable tool for families saving for a disabled child's future needs, without impacting federal and state benefits. The SECURE 2.0 Act has broadened the eligibility criteria for these accounts:

Age Threshold: The qualifying disability must have started before age 46, expanding from the previous age threshold of 26.

ABLE accounts can be an effective part of a comprehensive financial strategy, used alongside traditional 529 plans and special-needs trusts.

Conclusion

The SECURE Act 2.0 represents a significant evolution in the options available to those utilizing 529 plans and ABLE accounts. For those with long-standing 529 plans, the opportunity to move funds into a Roth IRA may offer a new pathway for financial growth and retirement planning. The expanded eligibility for ABLE accounts further increases the flexibility and accessibility of financial tools for families with disabled members.

As with any major legislative change, it is advisable to consult with financial professionals to understand how these shifts might affect individual financial strategies and to make the most of the opportunities they present.

The information provided herein is for general informational purposes only and should not be considered as individualized financial advice. Consult with a financial professional for advice based on your specific needs.