By Brice Carter, CFP®, CIMA®, ChFC®
Before I became a Chief Investment Officer and financial advisor, I spent a good chunk of my life competing in various sports. As a competitor, you don’t stop competing. You’re always looking for the optimal strategy, the best outcome, and the smartest way to protect your family’s future.
As a father planning for my kids, education is a top priority for me. When it comes to college savings, the 529 plan has historically been a good tool. But thanks to recent legislative changes, it just became an undisputed champion.
For years, the 529 plan has been the heavy hitter of education savings. You contribute after-tax dollars, the money grows tax-free, and as long as you use the withdrawals for qualified education expenses, the distributions are entirely tax-free. Additionally,
you often receive a state tax deduction for making the contributions. It’s an amazing tool.
However, parents always threw the same counterpunch: “Brice, what if my kid decides not to go to college? What if they earn a full-ride scholarship or go to trade school?”
Historically, if you pulled the money out for non-educational purposes, you’d get hit with taxes and a 10% penalty on the earnings. That risk made some families hesitant to fully fund a 529 plan, leaving them underprepared when tuition bills eventually arrived.
Enter the SECURE 2.0 Act.
Starting in 2024, the rules changed in a way that completely shifted the college savings landscape. Now, if your child doesn’t use all the money in their 529 plan, you can roll the remaining balance directly into a Roth IRA in the beneficiary’s name, without taxes or penalties.
We can’t predict the exact cost of college in 10 or 15 years, nor can we predict exactly what our kids will want to do, but we can plan for multiple outcomes.
But like any good strategy, you have to understand the rules of engagement:
1| The 15-Year Rule: The 529 account must have been open for at least 15 years before you can execute a rollover. This means opening an account early is more critical than ever.
2| The Lifetime Limit: You can roll over a maximum of $35,000 per beneficiary during their lifetime.
3| Annual Limits Apply: The rollover is subject to the annual Roth IRA contribution limits (e.g., $7,500 in 2026). You can’t move the entire $35,000 in a single year; it must be parceled out over several years.
4| The 5-Year Rule: Contributions made to the 529 plan within the last five years (and their earnings) are ineligible for the Roth conversion.
This update takes the biggest objection to 529 plans off the table. It provides a safety net that ensures your hard-earned savings won’t be penalized if your child takes a different path. Instead of a penalty, they get a massive head start on their financial independence.
We can’t predict the exact cost of college in 10 or 15 years, nor can we predict exactly what our kids will want to do, but we can plan for multiple outcomes. By leveraging the new 529-to-Roth conversion rules, you are setting your family up for a win, no matter what path they choose.
Brice Carter, CFP, ChFC, CIMA, CAP, CDAA, MSFS, has served as a Financial Advisor and the Chief Investment Officer (CIO) at Financial Strategies Group (FSG) since 2011. He joined the family run, SEC-registered firm and today plays a central leadership role in shaping investment strategy, portfolio management, and long-term planning for a growing client base. FSG has offices in Okemos and Fenton.
