From the Desk of Andrew Hammond: 529 to Roth IRA Rollovers

As we get closer to the end of the year, I wanted to share some exciting news about a new financial strategy that may benefit your family’s long-term financial health. This strategy involves using 529 plans and Roth IRAs to make the most of your savings and investments.

A New Opportunity: 529 to Roth IRA Rollovers

Recent changes in financial regulations now allow for the rollover of unused funds from 529 plans into Roth IRAs. This is a fantastic way to help ensure that any leftover education savings can continue to grow tax-free and support your children’s or grandchildren’s retirement.

Here are the key points to consider:

• Eligibility and Limits: The 529 plan must be open for at least 15 years, and you may roll over up to $35,000 into a Roth IRA. The annual contribution limit for Roth IRAs still applies, which is $7,000 for 2024.
• Long-Term Growth: By rolling over $35,000 into a Roth IRA when your child is 25, and assuming an eight percent annual return, this amount could grow to approximately $750,000 by the time they reach 65. This is a powerful way to set your children up for a secure retirement.
• Tax Benefits: This strategy allows you to move assets out of your estate, potentially reducing estate taxes, while also providing significant tax-free growth for your beneficiaries.

Implementing the Strategy in My Own Family

To show you how this works in real life, I’d like to share how my family is benefiting from it. My twins, who are 16, are already working part-time jobs as ski instructors. This has allowed us to set up Roth IRAs for them, where we contribute a portion of their earnings.

We are also planning to leave some funds in their 529 plans after they finish college, specifically to take advantage of the new rollover option. This way, any leftover education savings can be rolled into their Roth IRAs, giving them a great head start on their retirement savings.

My wife and I are actively using this strategy, and others, to help our kids understand the importance of investing. And it helps that they have “skin in the game.” We are teaching them how to invest and manage their money. The kids have access to their accounts and are learning to pick stocks and investments, which has created valuable conversations about financial planning and responsibility.

Next Steps

At AAF Wealth Management, we believe in educating our clients’ and their children about financial planning. We work with families to set up Roth IRAs for their kids and have one-on-one conversations to help them understand the value of investing early. It’s all about creating a foundation for their financial future.

If you are interested in exploring this strategy further, please reach out to schedule a meeting. We can review your current 529 plans and discuss how to best implement this rollover strategy to benefit your family. As always, if you have questions, please contact me at 774.512.4143 or ahammond@nullaafwealth.com.

Thank you for your continued trust and partnership. Together, we can help ensure a bright financial future for your loved ones.

AAF Wealth Management is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where AAF Wealth Management and its representatives are properly licensed or exempt from licensure. This blog is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by AAF Wealth Management unless a client service agreement is in place.