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Individual Retirement Accounts


SECURE 2.0 added an interesting twist to the 529 college savings plan

The SECURE 2.0 Act of 2022 brought some 92 provisions to the way Americans save for retirement. While a few high-profile changes made the headlines, a little digging led to an obscure change to the popular 529 college savings plan.
 
The 529 plan, established a generation ago, allows parents or grandparents to put money away to help cover the costs of their kids’ or grandkids’ education—primarily college, but the program later expanded in scope to include primary and secondary education costs. Although contributions are not tax deductible, not only do the funds grow free from taxation, disbursements made for qualified expenses are also tax-free for the entire portion—including growth. If there has been one major issue with the program, it has been the challenge of what to do with any excess funds not used for education by the beneficiary or another qualifying family member. That is about to change.
 
Until now, if 529 funds were not used for education, any withdrawals would incur a 10% penalty along with full taxation. Beginning in 2024, assuming the plan has been opened for at least fifteen years, tax- and penalty-free distributions can be made to fund a Roth IRA for the beneficiary. As with any IRA, the annual contribution limit must be honored, and the owner of the Roth must have earned income equal or greater than the amount moved. For example, if a beneficiary made $10,000 in earned income, the full $6,500 (based on 2023 limits) annual contribution could be made. If the beneficiary earned $2,000 in income for the year, that would be the maximum qualified to roll over. There is also a $35,000 lifetime cap placed on the aggregate rollovers made from any given plan. If the 529 plan has not been established for fifteen years, that threshold must be simply be met before the rollovers can be made.
 
We have come a long way with respect to education funding since the days of the $500 max-contribution Education IRAs. With the runaway cost of attending college, it is important to understand all of the options available to avoid—or at least mitigate—decades-long loan payback periods. Financial advisors and planners can help guide you through the maze of options and strategies.


For clients looking at 529 plans or other education savings vehicles for their kids or grandkids, the Education Analysis section of the Personal Financial Website contains some great information regarding funding higher education, to include updated figures for specific schools. Goals can be created, various scenarios can be run, and different strategies can be evaluated. Initial information can be added by going to Profile>Goals>Add Goal>Education. Various scenarios can be run by going to the Education tab and then selecting Action Items. Finally, existing student loans can be evaluated by going to the Dashboard and selecting the Student Loan sub-tab. 

The CARES Act suspends required minimum distributions (RMDs) for 2020. (02 Apr 2020) While investors who have already taken their required minimum distributions for 2020 appear to be out of luck, the government has offered some reprieve for others: 2020 RMDs have been permanently suspended. With the historic market losses of the first quarter, this is being done to allow those people who were required to take distributions the ability to keep all of their funds working in qualified accounts as the markets stage a comeback. In addition to this relief, 2020 is also the first year of the new required beginning date (RBD) of age 72. The silly half-year rule is no longer in effect ("70 1/2 years old in prior year of distribution..."), which means investors no longer need to calculate when their half-birthday was: if you were 72 in the prior year, an RMD is required. Not counting 2020, that is. Not only has roughly $10 trillion worth of investment value been shaved off of portfolios since mid-February, many companies will be whittling down their dividends to preserve much-needed cash for the economic recovery period. Those are the first two punches income-oriented investors are now facing; the third is the ultra-low interest rates being offered in the bond market, with a Fed funds rate of 0%. We can't see the third condition changing anytime soon.
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  • Home
  • Financial Planning
    • Balance Sheet >
      • The Investment Vault >
        • Emergency Reserve Fund
        • Company Plans
        • Individual Retirement Accounts
      • Debt
    • Cash Flow >
      • Income
      • Expenses
  • Products & Services
    • Penn Wealth Builder
    • Vol 10 Issue 01 Housing Issue
    • Vol 9 Issue 03 Show Goes On
    • Vol 9 Issue 02 Utilities
    • Market Downturn Toolkit
    • Professional Wealth Management
    • Personal Financial Website
    • Market Outlook
    • The Penn Global Leaders Club 2019
    • The Report
    • Worksheets & Tools
    • Building Your Empire
  • Our Organization
    • Which Route
  • Trading Desk
    • Trading Desk Private
  • The Penn Strategies
    • Sample Portfolios
    • Penn Strategic Income Portfolio
    • Penn Dynamic Growth Strategy
    • Penn Global Leaders Club
    • Penn Intrepid Trading Platform
    • Penn New Frontier Fund
  • Strategic Vision
    • The Blueprint
    • Leadership Academy >
      • Corporate Culture
    • Project Management
    • Western Civilization >
      • American Spirit
  • Command & Control
    • Action Environment >
      • Focus
    • Health & Longevity >
      • Cellular Health
    • Science of the Mind
    • Time Management
  • Harvesting Wealth
    • Business Development >
      • Building Your Business
      • Sales, Marketing, & Advertising >
        • Penn Digital Marketing
        • Advertising
        • Branding Strategy
      • SWOT Analysis
    • Business Finance
    • Real Estate Investment & Development
    • Retirement Planning >
      • Social Security, Medicare, & Medicaid
  • Tactical Awareness
    • Penn Wealth Realist's Dictionary
    • The Human Connection
    • Risk Management
    • Taxation >
      • Capital Gains & Losses
  • Investment Intelligence
    • Tactical Asset Allocation >
      • Tactical Asset Allocation—Private
    • Charts of the Week
    • Fixed Income Desk
    • Market Downturn Strategies
    • Science & Technology Investor >
      • Information Technology
      • Space Sciences & Exploration
    • Sector Weightings
    • Strategies & Tactics >
      • Behavioral Finance
      • Exchange Traded Funds
      • Fundamental Analysis >
        • Investment Valuation
      • Mergers & Acquisitions
      • Momentum Investing
      • Short Squeeze >
        • Short Squeeze Private
      • Technical Analysis
    • Under the Radar Private
  • The Journey
    • Travel & Leisure >
      • Latin America