Turning 65? What to Know About the 4 Parts of Medicare
If you are about to turn 65, then it is time to think about Medicare. You become eligible for Medicare as soon as you turn 65...
Read moreIt used to be that there were only two options for what to do with unused funds from a 529 college savings plan: withdraw the money or save it for future qualified education expenses.
As of 2024, however, you can now also roll over unspent funds from a 529 plan to a beneficiary-owned Roth Individual Retirement Account (IRA). This provision, introduced as part of the SECURE 2.0 Act, gives families a way to kick-start a young person’s retirement savings.
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While this change to the tax law enhanced the flexibility of 529 plan accounts, there are qualifications and limitations about how, when, and how much money can be transferred from a 529 to a Roth. Sections of the law that remain unclear could be the subject of future guidance from policymakers.
Since they were introduced in the 1990s, 529 plans, named after Section 529 of the Internal Revenue Code and designed to help people save for education costs, have grown more adaptable. Changes to 529s in the past few years have made it possible to pay for a child’s private primary and secondary school tuition expenses and to repay student loans using 529 funds.
These enhancements, combined with tax-free withdrawals for qualifying expenses and generous contribution maximums, have made 529 plans a popular way to finance a child’s or grandchild’s education.
But one issue continued to vex account owners: What happens to the money in a 529 account if the beneficiary doesn’t use all the funds?
This might occur, for example, if the beneficiary attended a college where tuition was cheaper than expected, decided not to attend, dropped out, or received a scholarship or an inheritance.
Prior to 2024, there were options for what to do with leftover 529 funds, but they were rather restrictive. Generally, an account owner could:
With maximum contribution limits for 529 plans up to or exceeding $500,000 in many states, college enrollment trending downward, and more students dropping out of college, some 529 owners found themselves with a significant chunk of available change and limited ways to spend it.
But thanks to the SECURE 2.0 Act, there is now another way to utilize these funds that has nothing to do with education (or home improvement) and makes 529 plans even more flexible.
The SECURE Act 2.0 provision allowing rollovers from a 529 plan to a Roth IRA gives account owners a fourth option for what to do with their excess savings. This option can be exercised without tax penalties, provided certain conditions are met. Here are some of the key details:
Although they have limits, these new rules give families a way to save for a child’s or grandchild’s education and their retirement at the same time, without worrying about them not attending college or not spending all the money in the account. They also create new possibilities for using a Roth IRA as an estate planning tool.
Anyone looking to capitalize on the 529 to Roth rollover option should take the following steps:
Keep in mind that an IRA can be funded with various types of investments, such as stocks, bonds, and mutual funds. A younger investor might benefit more from higher-risk, higher-growth investments since they have a longer investment horizon prior to retirement. An advisor can explain different IRA investment options with you.
Most 529 plans have started processing rollover requests, but questions remain about the new rule, which the IRS may address in the future. These gray areas in the statute are subject to various interpretations and, from a planning perspective, could affect the tax treatment of 529-to-Roth rollovers and the best way to take advantage of this option.
The main takeaway for now is that parents and grandparents can make a tax-free contribution that goes toward either education or retirement savings. Regardless of how the money ends up being spent, you can feel good knowing you’re increasing opportunities for the next generation.
To discuss specific 529-to-Roth rollover planning strategies, potential tax consequences, and how the process could benefit your heirs, consult with your estate planning attorney.
If you are about to turn 65, then it is time to think about Medicare. You become eligible for Medicare as soon as you turn 65...
Read morePrepaying for your funeral is one way to ease the burden on your family following your death and make sure your wishes are ca...
Read moreThis type of account, named for Section 529 of the Internal Revenue Code, enables you to reduce your taxable estate while ear...
Read moreIn order to qualify for Medicaid, a nursing home resident's income must not be above a certain level.
Read moreIn addition to nursing home care, Medicaid may cover home care and some care in an assisted living facility. Coverage in your state may depend on waivers of federal rules.
READ MORETo be eligible for Medicaid long-term care, recipients must have limited incomes and no more than $2,000 (in most states). Special rules apply for the home and other assets.
READ MORESpouses of Medicaid nursing home residents have special protections to keep them from becoming impoverished.
READ MOREIn addition to nursing home care, Medicaid may cover home care and some care in an assisted living facility. Coverage in your state may depend on waivers of federal rules.
READ MORETo be eligible for Medicaid long-term care, recipients must have limited incomes and no more than $2,000 (in most states). Special rules apply for the home and other assets.
READ MORESpouses of Medicaid nursing home residents have special protections to keep them from becoming impoverished.
READ MORECareful planning for potentially devastating long-term care costs can help protect your estate, whether for your spouse or for your children.
READ MOREIf steps aren't taken to protect the Medicaid recipient's house from the state’s attempts to recover benefits paid, the house may need to be sold.
READ MOREThere are ways to handle excess income or assets and still qualify for Medicaid long-term care, and programs that deliver care at home rather than in a nursing home.
READ MORECareful planning for potentially devastating long-term care costs can help protect your estate, whether for your spouse or for your children.
READ MOREIf steps aren't taken to protect the Medicaid recipient's house from the state’s attempts to recover benefits paid, the house may need to be sold.
READ MOREThere are ways to handle excess income or assets and still qualify for Medicaid long-term care, and programs that deliver care at home rather than in a nursing home.
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READ MOREMedicare's coverage of nursing home care is quite limited. For those who can afford it and who can qualify for coverage, long-term care insurance is the best alternative to Medicaid.
READ MOREMost states have laws on the books making adult children responsible if their parents can't afford to take care of themselves.
READ MOREApplying for Medicaid is a highly technical and complex process, and bad advice can actually make it more difficult to qualify for benefits.
READ MOREMedicare's coverage of nursing home care is quite limited. For those who can afford it and who can qualify for coverage, long-term care insurance is the best alternative to Medicaid.
READ MOREDistinguish the key concepts in estate planning, including the will, the trust, probate, the power of attorney, and how to avoid estate taxes.
READ MORELearn about grandparents’ visitation rights and how to avoid tax and public benefit issues when making gifts to grandchildren.
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READ MOREDistinguish the key concepts in estate planning, including the will, the trust, probate, the power of attorney, and how to avoid estate taxes.
READ MORELearn about grandparents’ visitation rights and how to avoid tax and public benefit issues when making gifts to grandchildren.
READ MOREUnderstand when and how a court appoints a guardian or conservator for an adult who becomes incapacitated, and how to avoid guardianship.
READ MOREWe need to plan for the possibility that we will become unable to make our own medical decisions. This may take the form of a health care proxy, a medical directive, a living will, or a combination of these.
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READ MOREUnderstand the ins and outs of insurance to cover the high cost of nursing home care, including when to buy it, how much to buy, and which spouse should get the coverage.
READ MOREWe explain the five phases of retirement planning, the difference between a 401(k) and an IRA, types of investments, asset diversification, the required minimum distribution rules, and more.
READ MOREFind out how to choose a nursing home or assisted living facility, when to fight a discharge, the rights of nursing home residents, all about reverse mortgages, and more.
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READ MOREGet a solid grounding in Social Security, including who is eligible, how to apply, spousal benefits, the taxation of benefits, how work affects payments, and SSDI and SSI.
READ MORELearn how a special needs trust can preserve assets for a person with disabilities without jeopardizing Medicaid and SSI, and how to plan for when caregivers are gone.
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