Tax Tip – 529 Plan rule change

Named after their corresponding section of the IRS tax code, 529 plans are tax-advantaged educational savings accounts that let Americans put aside money tax-free to pay for education. A rule change to 529 plans gives families a new reason to start one right away.

Introduced in 1986, 529 plans have had seen many changes over the years. The latest dramatic change came with the Congressional omnibus spending legislation passed at the end of 2022. Starting next year, as part of the Secure Act 2.0, unused funds from 529 plans can be rolled over into Roth IRAs without penalty.

There’s one catch to the new Roth IRA rollover rules: You must have owned the 529 educational savings account for 15 years before converting it. That gives you a strong reason to start the clock and open a tax-advantaged investment account to cover educational expenses.