Written by Tyler Stief, Associate Advisor
May 29, 2025

Plan Flexibility with SECURE 2.0—A Client Success Story

Background

Our client, a family with a long-term commitment to educational savings, found themselves with a substantial balance remaining in their child’s 529 plan after college expenses were covered. The family wanted to avoid penalties and taxes, while also maximizing the legacy and retirement benefits of these funds for their child and future generations.

The Challenge

Traditionally, leftover 529 funds not used for qualified education expenses faced limited options: withdrawals for non-education purposes would trigger taxes and a 10% penalty on earnings. The client wanted to avoid these penalties and sought a solution that would allow the unused funds to continue working for their family’s financial future.

The Solution: Leveraging SECURE 2.0 Provisions

With the passage of the SECURE Act 2.0, new planning opportunities emerged for 529 account holders:

  • 529-to-Roth IRA Rollovers: Starting in 2024, beneficiaries can roll over up to $35,000 in unused 529 funds to a Roth IRA in their name, tax- and penalty-free, subject to annual Roth contribution limits and certain requirements.
  • Legacy Planning: Any leftover 529 funds not rolled into a Roth IRA can remain in the account, allowing the client to designate new beneficiaries—such as future grandchildren—preserving the tax-advantaged growth for another generation.

How We Implemented the Strategy

  1. Roth IRA Conversion Plan
    • We confirmed the 529 account had been open for at least 15 years, as required by SECURE 2.0.
    • We mapped out a multi-year strategy, rolling over the maximum allowable amount (subject to annual Roth IRA contribution limits and the beneficiary’s earned income) we will continue this until the $35,000 lifetime cap is reached.
    • Each year, we coordinate with the client to ensure the beneficiary still has sufficient earned income to match the rollover amount, and that they are eligible to contribute to a Roth IRA.
  2. Legacy Account Creation
    • After maximizing Roth conversions, the remaining 529 balance will be preserved in the account.
    • As we have other accounts designated for retirement, the client decided to keep the 529 open for potential future educational needs of other family members, effectively transforming it into a legacy education fund.

Results and Impact

  • Tax-Free Retirement Savings: The beneficiary now benefits from up to $35,000 in Roth IRA contributions, which will grow tax-free and can be withdrawn tax- and penalty-free in retirement.
  • No Penalties or Taxes: By utilizing the SECURE 2.0 provisions, the family avoided taxes and penalties on unused 529 funds.
  • Multi-Generational Planning: The remaining 529 funds continue to grow tax-free, ready to support the educational goals of future generations, enhancing the family’s legacy.

Conclusion

This case demonstrates how thoughtful planning and up-to-date knowledge of evolving tax law can turn a potential tax liability into a powerful retirement and legacy asset. By leveraging SECURE 2.0, our client maximized the flexibility and value of their 529 plan, benefiting both current and future generations.

Interested in learning how these strategies can work for your family? Let’s connect to explore your options.