Recent changes to federal law have made it possible to use for retirement some of the money in 529 college savings accounts that is not needed for education, writes Ann Carrns for The New York Times.

Starting this year, new rules known as the Secure 2.0 Act allow the rollover of up to $35,000 from a 529 account to a Roth individual retirement account for the 529 account beneficiary if certain conditions are met.

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State-sponsored 529 accounts are used to pay for various education expenses, or mainly college costs. Money that is deposited in the accounts named for a section of the tax code grows tax free and can also be withdrawn tax free to pay for eligible expenses, such as tuition, housing, food, and books.

Any new option targets parents who may be reluctant to put money in a 529 because they are worried about having to either pay income taxes or a penalty in case funds are not needed for college and they wish to withdraw the money.

“It is parents’ No. 1 objection to opening a 529,” said Vivian Tsai, chair emeritus of the College Savings Foundation. “The barrier is really psychological.”

To qualify for the rollover option, a 529 account needs to have been open for a minimum of 15 years. No contributions or earnings made in the past five years can be transferred. A total of $35,000 can be transferred, but transfers are still limited to the maximum annual Roth contribution. In 2024, that is $7,000 for people younger than 50. The maximum amount can be reached by moving money over several years.

Some other rules may also apply. For instance, to contribute to a Roth, a saver has to have earned income, and their contributions for a given tax year cannot exceed what they earned.

“Every little bit moved into a Roth helps,” said Fred Hubler, CEO and Chief Wealth Strategist for Creative Capital Wealth Management Group in Chester Springs. “Roths are one of the few never-taxed-again buckets, and this change allows clients to have their capital in the best account for their needs.”

Read more about the new rules that allow for some money in college savings accounts to go toward retirement in The New York Times.

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