Leftover 529 funds? There's a new Roth option

Pathway lets families roll over unused college money but there are limits.

- BY MARGARET GILES

A POLICY CHANGE gives families with 529 plans more choices when savings remain after education costs.

(MYUNG J. CHUN Los Angeles Times)

529 education savings plans are powerful tools to help pay for the mounting costs of an education. Yet some people hesitate to use them.

One common concern is oversaving. You can only use 529 funds to cover qualified education expenses without incurring a tax penalty, but it can be hard to pinpoint how much money you need.

Many parents open 529s for their children at birth, when there’s no way to know whether their kids will earn a scholarship or go to college at all. Fortunately, parents with multiple children can change the beneficiary of a 529 plan.

But what do you do if you have money left over after covering education expenses?

Thanks to the Secure 2.0 Act, you can now roll over unused 529 funds to a Roth IRA. But the 529 rollover isn’t a loophole to save extra for retirement; rules limit the conversions.

Here’s what you should consider:

The Roth IRA receiving the funds must be in the name of the 529 plan beneficiary.