The SECURE Act 2.0, passed in the very last week of 2022, has provided a few opportunities regarding tax-sheltered savings vehicles and how we use them. Most people have already heard about the Required Beginning Date (RBD) for Required Minimum Distributions (RMD) being pushed out to age 73, for those born before 1960 who have yet to start taking RMDs, and to age 75, for those born 1960 or after. However, there are two less talked about financial benefits provided by the SECURE Act 2.0: funding 529 plans for other than educational purposes and using tax-free IRA distributions to generate lifetime income.
529 PLANS NOT USED FOR EDUCATION
The first new treatment of tax-sheltered savings relates to 529 plans funded for educational expenses. Beginning in 2024, the SECURE Act 2.0 gives a 529 plan beneficiary the ability to transfer 529 plan funds, not used for the original intent of funding education, into their own Roth IRA without paying taxes or penalties. The new rule allows for up to $35,000 of excess funds to be rolled into a Roth IRA for the beneficiary over their lifetime. Note that the beneficiary is the student the plan was established for, not the funding account owner.
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