Kids and Money: SECURE Act boosts 529 options

Congress gift wrapped a lucrative year-end present to parents that adds flexibility on how to handle untapped money sitting in a 529 college savings account.

The SECURE Act 2.0, which was approved late last month, includes a provision that allows tax- and penalty-free rollovers into a Roth retirement account of money stranded in 529s and no longer needed to pay college expenses. Certain conditions, of course, must be met.

This provision comes with a $35,000 lifetime cap on the rollovers and is set to go into effect in 2024. Currently, money in a 529 that’s withdrawn for non-education expenses can be subject to penalties and taxes.

For many families, sitting on a spare $35,000 in a 529 plan is a nonissue. They need to plunk down every dollar possible into the 529 to cover tuition and don’t have money to spare.

But having extra money in a 529 can happen, especially if your child gets hefty scholarships or chooses not to attend college or you simply overfunded your account or chose a more affordable school. This new option allows parents to eventually reposition the extra funds from the child’s college account to a tax-advantaged Roth IRA.

This provision is not a carte blanche option for the wealthy. There are caveats:

The 529 plan must have been opened for at least 15 years before the rollover into a retirement account can occur.

The lifetime cap of $35,000 “limits the usefulness for families that have greater amounts of leftover money, such as for children enrolled in t