A little over a year ago, Congress passed the SECURE 2.0 Act, bringing significant changes to the world of retirement savings and student loans. Two key parts of the SECURE 2.0 Act took effect in 2024, and they could substantially impact your family’s financial future, especially if you have unused 529 Funds

You’re probably wondering what this new provision means for your unused 529 college savings account. Understanding these changes is crucial because they present new opportunities for your savings. We’re here to walk you through the new law and how it affects your unused 529 funds.

In this blog, we’ll explain the details of the SECURE 2.0 Act, focusing on how the new provisions can help you make the most of your unused 529 funds. Together, we’ll explore practical steps you can take to optimize your estate and financial planning under this new legislation.

Let’s explore what you can spend these accounts on and how you can turn these changes into advantages for your future savings and estate planning with retirement accounts.

What are Qualified Education Expenses in Michigan?

When it comes to using your unused 529 funds in Michigan, it’s essential to understand what expenses qualify to ensure you’re making the most of your savings.

Qualified education expenses are costs that you can pay for with your 529 funds without incurring taxes and penalties. Knowing these details helps you optimize your child or grandchild’s education funding and avoid any unexpected financial surprises.

Tuition and Fees

Tuition and fees are the most obvious qualified education expenses. Whether a child decides to attend college, vocational training, or a military academy, you can use your 529 plan funds to cover these costs.

This includes high school tuition for both in-state and out-of-state schools, as well as graduate school programs.

Room and Board

If your student is enrolled at least half-time, room and board expenses can be paid using your 529 funds.

This covers both on-campus housing and certain off-campus living arrangements, ensuring your child has a comfortable place to live while pursuing their education.

Books and Supplies

Books and necessary supplies for your child’s education are also qualified expenses. This includes required textbooks, lab equipment, and other materials essential for completing coursework.

Having these items covered can significantly reduce the overall cost of education.

Computers and Technology

In today’s digital age, computers and technology are crucial for education. You can use your 529 plan funds to purchase a computer, software, and internet access, provided they are primarily used by the student for educational purposes.

This ensures your child has the tools needed for success.

Special Needs Services

For students with special needs, any expenses related to their education, including specialized services and equipment, qualify as educational expenses.

This ensures that all students have equal access to educational opportunities.

K-12 Tuition

With the new provisions under the SECURE 2.0 Act, you can now use up to $10,000 per year from your 529 plan funds to pay for tuition at private, public, or religious K-12 schools.

This provides greater flexibility in how you choose to fund your child’s education.

Student Loan Payments

In certain circumstances, you can use leftover 529 account funds to pay student loans. The SECURE 2.0 Act allows a lifetime limit of $10,000 per beneficiary to be used for student loan payments.

This can be a significant relief if your child has remaining funds after completing their education.

Vocational and Technical Training

Vocational and technical training programs are also eligible for 529 plan funding. If your child chooses a path that doesn’t include traditional college, these funds can still be used to support their career development.

Graduate School

If your child continues their education with graduate school, your 529 funds can cover these advanced studies. This allows you to support their educational journey without the worry of finding additional funding sources.

In conclusion, understanding what expenses qualify for 529 plan funding in Michigan helps you make informed decisions about your child’s education. Whether it’s covering tuition, room and board, or even student loans, your 529 plan offers flexibility and benefits that can significantly impact your family’s financial future.

Always consult with a financial professional or tax advisor to ensure you’re maximizing these benefits while staying compliant with all regulations.

However, if your child or grandchild has finished their education, there are ways to make the most of the leftover funds remaining in 529 college savings plan accounts. Let’s explore these possibilities next.

Roll 529 College Savings Into A Roth IRA

A 529 college fund is a tax-advantaged savings account that is designed to help families save for their children’s college education. With the SECURE 2.0 Act, Congress expanded the ways you can use these accounts by introducing a new rollover option, which is especially helpful if the beneficiary has more money left over after their education is complete.

Starting in 2024, a 529 plan account beneficiary will have the opportunity to roll over up to $35,000 from your 529 college savings plans into a Roth IRA – and the best part is it’s tax and penalty-free. 

But there are some rules you’ll need to follow to take advantage of this retirement fund boost. Let’s look at those next.

Annual and Lifetime Contribution Limits

Any rollover from your 529 account is subject to annual Roth IRA contribution limits.

For example, if in 2024 the Roth IRA contribution limit remains the same as in 2023 ($6,500 for individuals under 50), you can roll over an amount up to this limit, including yearly contributions withheld from your income.

There is also a lifetime limit and a rollover contribution limit of $35,000.

For clarification and legal counsel about these rules, contact us at The Law Offices of Jarrett R. McCartney. We’d be honored to learn more about your family’s goals and share with you the unique process we use to ensure everything you own and everyone you love is cared for, no matter what.

The 15-Year Rule

To qualify for tax and penalty-free rollovers, the 529 plan must have been open for at least 15 years. This 15-year clock starts ticking from the day the 529 plan was initially opened, usually by a parent or grandparent.

It’s crucial to remember that changing the beneficiary of the 529 plan at any point may potentially restart this 15-year clock.

5-Year Rollover Blackout

Funds that were contributed to your 529 plan within five years of the rollover date cannot be rolled over. Only contributions made outside of this five-year window are eligible.

But, you can continue to rollover funds as time goes on and the 5-year window moves farther away from the most recent contributions.

Real Life Example 1

Imagine your mother opened a 529 account for you in 2001. She contributed money to the account every year for 20 years, through 2020. When you graduated college in 2022, there were some funds left in the 529 account. You want to roll over these funds into a Roth IRA on January 1, 2024.  

In this scenario, the account has been open for at least 15 years, so you can roll over funds into a Roth IRA, up to the annual contribution limit of $6,500 per year.

However, the funds you roll over from the 529 cannot include funds your mother contributed in the 5 years before your rollover date of January 1, 2024. That means you can’t roll over funds contributed to the 529 account between January 1, 2019, and January 1, 2024. 

Real Life Example 2

Your father opened a 529 college savings account for you in 1998 and contributed money to it every year until your graduation from trade school in 2015. Since graduation, you and your employer have contributed a total of $3,000 to your retirement account this year. There is $10,000 left in the account and you want to roll over the funds into a Roth IRA on January 1, 2024. 

In this example, the account has been open for more than 15 years, and all of the funds in the account were contributed to it more than five years ago, so all of the funds are eligible for a rollover.

However, you can only contribute up to $6,500 to your retirement accounts annually. Because of this, you can only roll over a maximum of $3,500 from your 529 account into your Roth IRA this year if you or your employer don’t make any more contributions to your retirement this year. After the rollover, you’ll have $6,500 in your 529 account at the end of 2024.

In 2025, you’ll be able to roll over the remaining $6,500 from your 529 into your Roth IRA (if you make no other contributions from your income that year). 

An Extra Bonus For Grandparent-Owned Accounts

In order to be considered for federal financial aid, students must disclose their personal and family financial information on the Free Application for Federal Student Aid (FASFA). Funds in a 529 account created by a parent are counted as a financial asset of the student on the FAFSA application.

But funds in a 529 account owned by a grandparent or other third party have never been counted as an asset for tax purposes or FAFSA purposes. Only money withdrawn from the account is considered untaxed income of the student which FAFSA considers in its application review.

The big news is that with the new Secure 2.0 Act, any withdrawals from a grandparent-owned 529 for education expenses will no longer be considered untaxed income of the student, which means the funds will not hurt the student’s eligibility for federal aid.

Planning for What’s Really Important

While you take steps to secure your financial future, remember to protect everything you’ve worked so hard to build.

Your retirement savings are likely the largest asset you own, and making sure they’re managed and passed on in the best way possible is essential for your well-being and the future well-being of those you love.

Other Options For Using Leftover Funds

When your child has finished their education, and you have leftover 529 funds, you have several options to make the most of this money. Here are some of the best ways to utilize these remaining funds:

Transfer to Another Beneficiary

One of the most flexible options is to transfer the remaining 529 funds to another eligible family member. This could be a sibling, cousin, or even yourself if you plan to pursue further education. There are no federal income tax penalties for the transfer amount when changing the beneficiary. However, the new beneficiary mut be a qualified family member.

Pay for Future Education

Consider using the leftover funds for your child’s future education needs, such as graduate school or additional certifications. Even if your child decides to pursue further education later on, these funds can be a significant financial advantage.

Save for Your Own Education

If you have ever considered furthering your own education, the remaining 529 funds can be used to cover your expenses. Whether it’s for career advancement or personal enrichment, you can use these funds to attend college or vocational training.

Use for K-12 Education

If you have younger children or grandchildren, you can use the leftover 529 funds to cover their K-12 education expenses. You can use up to $10,000 per year to be for tuition at private, public, or religious schools.

Cover Apprenticeship Programs

529 funds can also be used for apprenticeship programs registered with the U.S. Department of Labor. These programs offer valuable training and can be a great alternative to traditional college education.

Pay Off Student Loans

The SECURE Act allows you to use up to $10,000 of leftover 529 funds to pay student loans for the same beneficiary or siblings. This can help reduce the financial burden of student loan debt.

Non-Qualified Withdrawals

If you must withdraw the funds for non-qualified expenses, be aware that you will pay income tax on the earnings portion and a 10% penalty. However, this may still be a viable option if none of the other options suit your needs.

Keep for Future Generations

You can leave the funds in the 529 plan to potentially use for future grandchildren. This can be an excellent way to create a lasting legacy of education funding for your family.

Donate to a Scholarship Fund

Another meaningful use of leftover 529 funds is to donate them to a scholarship fund. This can help other students achieve their educational goals and make a positive impact in the community.

Consult a Professional

Given the various options and potential tax implications, it’s wise to consult with an estate planning attorney. They can provide personalized advice to help you make the best decision for your family’s financial situation.

Ensure that your leftover 529 funds continue to provide value and support for your family’s goals.

We Can Help

At The Law Offices of Jarrett R. McCartney, we understand that estate planning can be complex and overwhelming. Our goal is to guide you through the process with clarity and confidence, ensuring that your family’s future is secure.

Comprehensive Estate Planning

We offer comprehensive estate planning services tailored to your unique needs. Whether you’re looking to manage unused 529 funds or explore options like Roth IRAs and traditional IRAs, we help you make informed decisions.

Our team helps you understand the provisions of the SECURE Act and how they impact your estate and financial planning.

Maximizing Your 529 College Savings

If you have leftover 529 funds, we can help you maximize their use. We’ll explore options such as transferring unused funds to another eligible relative or using them for other purposes.

Understanding the income limits and lifetime limits associated with these options is crucial. We’re here to provide the necessary guidance.

Retirement Planning and Tax Efficiency

Our firm specializes in creating strategies that allow your investments to grow tax-deferred, ensuring you get the most out of your IRA contributions.

We’ll help you navigate the complexities of retirement planning, including the use of Roth IRAs and traditional IRAs, and how to manage any non-qualified education expenses without incurring unnecessary penalties.

Protecting Your Wealth

We know that protecting your wealth for future generations is a priority. We’ll work with you to establish trusts, manage non-education expenses, and ensure that your estate plan meets all legal requirements.

Our aim is to create a plan that secures your assets while aligning with your personal values and goals.

Personalized Guidance

Every family’s situation is unique, and we believe in providing personalized guidance to meet your specific needs.

Whether you’re planning for your child’s education, managing student loans, or preparing for retirement, we’re here to offer support and experienced advice every step of the way.

Let’s Start Planning

Don’t wait to start saving and planning for your future. Contact The Law Offices of Jarrett R. McCartney today to schedule a consultation. Together, we’ll create a comprehensive estate plan that ensures your money is used wisely and your family’s future is protected.

Talk with us to ensure that your financial planning is thorough and tailored to your estate planning needs.