A major sticking point for a college savings program will soon go away thanks to a provision in a recent omnibus appropriations bill approved by Congress.
From January 1, funds up to $35,000 accumulated in 529 college savings plans can be rolled over into Roth 401(k)s  with no tax or penalty after maturing for 15 years. The change was included in a provision of the Secure 2.0 Act approved by federal lawmakers last week.
For parents looking to save money for their children’s education, 529 savings plans have offered an alluring option since withdrawals for qualified expenses are not subject to federal income tax. Moreover, some states have offered additional incentives to savers, ranging from a tax credit for contributions to matching grants.
However, many Americans were put off by the accounts’ inflexibility. This has especially been true recently with Americans feeling considerable financial stress and recent high school graduates opting out of college altogether or veering towards cheaper alternatives when confronted with ever-climbing tuition fees, as previously covered in The Dallas Express.
These shifts have contributed to a 15% drop in 529 savings plan investments between 2021 and 2022 from $480 billion to $411 billion. Yet, as Vivian Tsai, chair of the College Savings Foundation, suggested, the new provision giving account users more flexibility could turn things around.
“Most people’s objections are ‘What if I don’t use this money for education.’ Now you can use it for retirement,” said Tsai, according to NBC 5 DFW. “It removes a significant objection.”
Marshall Nelson, a wealth advisor at Crewe Advisors in Salt Lake City agreed, calling investments into 529 savings plans “a no-brainer at this point,” per NBC 5.
As covered previously in The Dallas Express, there has been considerable concern surrounding the absence of savings for many Americans set to retire in the coming decade.
One investigation headed by the National Institute on Retirement Security found that 40% of those born between 1965 and 1980 had no retirement savings whatsoever. Another study from Fidelity Investments on 401(k) accounts flagged an upward trend of people depleting their savings through loans or hardship withdrawals this past year.
Secure 2.0 makes several changes to the U.S. retirement system by expanding access to part-time workers, small business employees, student loan borrowers, and military spouses.
As the president and CEO of the American Council of Life Insurers, Susan Neely, said in a press release, “Legislation included in the 2023 omnibus spending package addresses gaps that have left some people on the sidelines of retirement savings. … [They now] have a better chance of positioning themselves for a more financially secure retirement as a result of Congress’s action today.”
