March 27, 2024 – Illinois State Treasurer Michael Frerichs is urging state legislators to approve a bill that would allow parents who don’t use all the money in their child’s Illinois 529 College Savings Accounts to roll over the funds into a Roth IRA for the child’s future retirement.
This new option is possible because Congress approved a measure in December 2022 changing Section 529 of the Internal Revenue Code to authorize tax and penalty-free rollovers from college savings plans to Roth IRAs, with some limitations.
For the option to take effect in Illinois, lawmakers must change state law to allow the Roth IRA rollover option for Bright Start and Bright Directions 529 college savings account owners.
“This will give parents another option when deciding what to do with the money they’ve saved for their children if they don’t use all of it.” Frerichs said.
The federal law set some limitations on college savings rollovers, including a $35,000 lifetime limit on transfers, which also are subject to annual Roth IRA contribution limits (this year they are $7,000 for people under 50). Rollovers must be made to the college savings account beneficiary and not the owner. Rollovers also only can be made from 529 accounts that have been active for 15 years and no contributions or investment earnings in the last five years are eligible for rollover.
For more information click HERE.
By: Ahsaan Spence
