The Internal Revenue Code has recent changes for tax incentives that will link two of its most popular investment vehicles. Beginning in 2024, a 529 plan holder can rollover up to $35,000 to a Roth IRA. In case you’re not aware, a 529 plan is an investment account that mitigates tax on gains when used to pay for qualified education expenses for its designated beneficiary, and a Roth IRA is an individual investment retirement account for prost-tax earnings.
Although some 529 plans are used to prepay education expenses, tax-favored investment plans are far more prevalent. Funds saved in 529 plans for education are generally exempt from income tax, both upon distribution and while accumulating wealth within the plan. The 529 plan is extremely flexible, and may be used for almost any school, whether elementary or postgraduate, secular or religious, vocational or traditional, public or private. Section 529 investment plans must be established and maintained by a state. An individual can use any 529 plan offered by a state, but there may be plan-specific benefits for state residents.
Extraordinarily, there are not any income qualifications or annual contribution limits for 529 plans. In contrast, a Roth IRA has strict rules for both. A Roth IRA is the reverse of an IRA—contributions are not tax-deductible, but distributions are tax-exempt. This is ideal for taxpayers anticipating a higher income level later in life. The SECURE Act 2.0 passed at the close of last year will permit the transfer or “rollover” of 529 plan funds to a Roth IRA. However, there are conditions:
In effect, the income limits ($153,000/$228,000 for filing individually/jointly) for the Roth IRA can be surpassed. While this may sound dubious, the Internal Revenue Code explicitly encourages the use of this technique. The opportunity to take advantage of this will be available beginning in 2024.
If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.
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California has required employers to “indemnify” employees for “necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer” in substantially the same terms since 1937 under Labor Code § 2802.
