NEWS & RESOURCES

Authored by: Jason Underwood, CFP, Financial Advisor

Understanding 529 Education Savings Plans and SECURE Act 2.0 Updates

529 education savings plans have long been a valuable tool for families looking to save for future educational expenses in a tax-advantaged way. These plans allow individuals to contribute funds that grow tax-free, provided they are used for qualified education expenses. Recent changes under the SECURE Act 2.0, effective January 2024, have introduced new rules that expand the flexibility of these accounts, particularly regarding rollovers to Roth IRAs.

What is a 529 Plan?

A 529 plan is a state-sponsored investment account designed to help families save for education costs. Funds in a 529 plan can be used for:

• Tuition and fees at colleges, universities, and vocational schools
• K-12 private school tuition (up to $10,000 per year)
• Room and board for eligible students
• Books, supplies, and technology required for coursework

Contributions to a 529 plan are not tax-deductible at the federal level, but earnings grow tax-free, and withdrawals for qualified expenses are also tax-free.

SECURE Act 2.0: Key Changes for 529 Plans

The SECURE Act 2.0 introduced a significant new provision allowing 529-to-Roth IRA rollovers. This change addresses concerns about unused 529 funds when a beneficiary does not need the full amount for education.

Under the new rules, beneficiaries of a 529 plan can roll over unused funds into a Roth IRA, subject to the following conditions:

• The 529 account must have been open for at least 15 years.
• The beneficiary of the 529 plan must be the same person who owns the Roth IRA.
• The rollover amount is subject to annual Roth IRA contribution limits.
• The lifetime rollover limit is $35,000.
• Contributions made within the last five years before the rollover are not eligible.

This provision provides a new way for families to repurpose unused education savings into retirement funds, offering long-term financial benefits.

Other Recent 529 Plan Updates

In addition to the SECURE Act 2.0 changes, other updates have made 529 plans more attractive:

• Gift Tax Exclusion Increase – The annual gift tax exclusion for 529 contributions increased to $19,000 per individual in 2025.
• Expanded Qualified Expenses – More education-related costs are now eligible for tax-free withdrawals.

Planning Ahead

Families considering a 529 plan should evaluate their long-term financial goals, including potential rollovers to Roth IRAs. While these accounts remain a powerful tool for education savings, the new flexibility introduced by SECURE Act 2.0 makes them even more beneficial for future financial planning.

By understanding these updates, individuals can make informed decisions that maximize the benefits of 529 education savings plans, ensuring both educational and retirement security.

At Cordell, Neher & Company, PLLC, we understand the importance of financial well-being and are here to guide you through every step of the process. To learn more, visit our website at cnccpa.com or call us at (509) 663-1661. Investment strategies discussed may not be suitable for all investors, please consult with your financial professional.