How new 529 plan rules can help with retirement planning
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Every year, investors use 529 plans to save for their loved ones’ educations. While this tax-advantaged account has many benefits, one concern has long persisted with parents, grandparents and others: If college plans change, excess 529 plan funds could go unused or be subject to a tax penalty if used for nonqualified education expenses. Beginning this year, that concern is addressed, thanks to a change in U. S. law.
Starting in 2024, 529 plan owners now have the option to use excess 529 plan funds to jumpstart the retirement savings of their beneficiaries. **Please note:** **Although the change to 529 plans is effective for 2024, the Treasury Department has yet to issue guidance for providers on how to implement the provision, so its availability will likely vary among providers. ** Your Ameriprise financial advisor will help you evaluate how this change can potentially benefit your family and loved ones. Here’s what you need to know about this update to 529 plans: In December 2022, SECURE Act 2. 0 was signed into law to enhance retirement savings opportunities for Americans.
One provision — effective in 2024 — allows owners of a 529 plan to move unused funds in the account directly to the plan beneficiary’s Roth IRA. This option may provide beneficiaries with tax-free retirement money. Previously, if beneficiaries were to use assets in a 529 plan for anything other than qualified educational expenses, the earnings portion of any nonqualified distribution would likely be subject to ordinary income taxes and a 10% penalty.