The government just loves to roll out new investment tools and then spend the next 50 years tinkering with the rules. 529 college savings plans are no different. Lately there is good news and bad news on the legislative front.
The good news, and this is HUGE, is that with the SECURE 2.0 Act, parents can now move unused 529 college savings money into a Roth IRA for their child. Of course, there are caveats, rules, provisos, and fine print.
- The account must be open for at least 15 years.
- $35,000 maximum contribution to the Roth IRA
- Rollovers may start in 2024.
- No income limits, but subject to annual contribution maximums. That’s $6,500/year currently.
- Contribution/Earnings must be in the 529 at least 5 years to rollover. This feels like an administrative headache to track.
The less good news is on the Colorado front. The legislature recently passed limits on how much of your contributions qualify for a state income tax deduction. For the 2023 tax year, single filers can deduct up to $20,700 in contributions from their state income taxes and married filers can deduct up to $31,000.
Also, if you are waiting for Colorado to join other states in making 529 money available for spending on private school before college, you will probably just keeeeeep waiting.
After all this talk of college savings, please don’t feel pressured to roll out the red carpet for your child’s wildest college education fantasies. Many parents can’t afford to save for college and secure their own retirement at the same time.
I’ve said it before and you will hear this from any qualified financial planner: You must secure your own retirement savings before you have the luxury of piling money into a child’s education account. You have one shot to save for retirement. Your child has lots of ways to fund college.
The best gift you can give your child is a reality check about your ability to pay their college costs and the consequences of getting too far into student debt. College selection is a huge business decision and should not be based on whether your kid prefers sweater weather or year-round bikini time.
