Secure 2.0 Creates New Backdoor Roth Opportunity

Here’s a look at how a new legislative provision may be an opportunity to help jump-start retirement savings for children while saving for college at the same time.

Looking deeper into the new SECURE 2.0 provisions—roughly 90 in total—one section presents some intriguing planning opportunities for those funding college savings plans.

Beginning this year, section 126 of the SECURE 2.0 Act allows unused funds from a qualified college savings plan (i.e. 529 accounts) to be transferred to a Roth IRA free of tax or penalties, up to a lifetime limit of $35,000. This provision offers some peace of mind for parents (or other 529 owners) concerned about having to make a non-qualified withdrawal from a 529 plan if not all the funds were used.

Here are the rules around the provision:

  • The aggregate, lifetime amount eligible for transfer from a 529 plan to a Roth IRA is $35,000 per beneficiary.
  • The Roth IRA must be established in the name of the 529 beneficiary.
  • Annual contribution limits apply to transfers. For 2023, the contribution limit for IRAs, including Roth IRAs, was $6,500, and for 2024, the IRA limit increases to $7,000.