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How 529 Plans Can Now Fund Education and Retirement


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March 19, 2023

You probably think of education when you hear the term 529 plan; however, because of the SECURE Act 2.0 , you now can roll a portion of 529 plan funds into a Roth IRA for your child. This is substantial when you consider what it means for any excess funds you have, along with the tax advantaged nature of both the 529 plan and Roth IRA. Let's walk through each of these, how the process works, and the potential impact of this on your child's future.

What is a 529 Plan and a Roth IRA?

529 Plan

  • A tax-advantaged education account where earnings are tax-deferred.
  • If distributions are used for qualified educational expenses, they are tax-free.
  • Can be used for K-12 private school up to $10,000 per year and unlimited each year for college expenses.
  • May get a state tax deduction depending on where you set up the account and what state you live in.
  • Typically invested in mutual funds available within the specific 529 plan.

Roth IRA

  • A tax advantaged retirement account where earnings on contributions are tax-deferred.
  • Have to wait until age 59½ to have all distributions be tax-free.
  • Can pull out contributions tax-free and penalty free if held for at least 5 years.
  • Can invest in stocks, bonds, mutual funds, ETF's, etc.

How Can You Roll 529 Plan Funds into a Roth IRA?

Known as section 126, this law will take effect on January 1st of 2024 and there are a few important things to know.

  • There is a lifetime transfer cap of $35,000 from a 529 plan for a single beneficiary to a Roth IRA for that same beneficiary.
  • You are also limited to the annual contribution limit in transfers each year. The current limit is $6,500 so you would be able to transfer that amount each year until the $35,000 limit is reached.
  • The beneficiary must have earned income in the amount that is rolled over into the Roth IRA from the 529 plan. If the child only made $5,000 they can rollover that amount from the 529 plan. If they made $40,000, they could only transfer $6,500.
  • The 529 plan must be open for 15 years to be rolled over into a Roth IRA.
  • Any contributions or earnings on contributions made in the last 5 years are ineligible to be rolled over from the 529 plan to a Roth IRA.

What is the potential impact on your child's retirement?


Projected Amount at Age 60*

Scenario 1- no additional contributions


Scenario 2- contribute $6,500 annually age 28-32


Scenario 3- contribute $6,500 annually age 28-37


*Assumes 7% annual return

**Assumes annual contributions of $6,500 age 22-26 and $2,500 contribution at age 27

In the past, there has been concern about overfunding a 529 plan due to the tax consequences associated with taking 529 plan funds out for non-education expenses. Due to this, parents have either underfunded a 529 plan account or went a different route when saving for education expenses. Due to this new tax law, the numbers speak for themselves: it would be advantageous to not only fund a 529 plan for education, but if capable, overfund it to set your child up for their education and jumpstart their retirement savings.

If you would like to receive more information on making smart money moves for your future, be sure to contact us today!


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About the author

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Kurt Brucker

Vice President, Private CFO®

A native of Marietta, Kurt graduated from Kennesaw State University (KSU), Summa Cum Laude, with a BBA in Finance and a Coles Scholars minor (top 10 in the business school). Kurt used his experience in the business school to quickly transition and make an impact at oXYGen Financial. In 4 years Kurt has risen from intern all the way to Vice President & Private CFO®.

Kurt lives in Buckhead with his wife Megan and is very involved with the faith community including Passion City Church. He is a die-hard Atlanta sports fan and loves to play golf and meet new people. Kurt is a very driven and motivated individual with a passion for helping others see their dreams come true.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. Investor Disclosures: https://bit.ly/KF-Disclosures

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Background and qualification information is available at FINRA's BrokerCheck website.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. https://Bit.ly/KF-Disclosures

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