In December 2022, Congress passed the SECURE Act 2.0. It introduced two new rules relating to 529 plans and student debt that will take effect in 2024.
The first provision allows for tax- and penalty-free rollovers from a 529 plan to a Roth IRA. The second provision allows student loan payments made by employees to qualify for employer retirement matching contributions. The overall goal is to help young adults start saving for retirement.
New 529 Rollover Option
529 plans are tax-advantaged savings accounts specifically geared to saving for college. In an effort to broaden the flexibility of 529 plans in situations where families have extra funds in an account, Congress created a new rollover option.
Starting in 2024, 529 plan beneficiaries can roll over up to $35,000 to a Roth IRA over their lifetimes. The rollover is not subject to taxes or a penalty that would typically apply to a non-education use of funds. This new rollover option can allow a young adult to get a head start on saving for retirement.
Here’s how it will work:
New Option for Employer Treatment of Employee Student Loan Payments
In addition to making 529 plans more flexible with a new rollover option, the SECURE 2.0 legislation seeks to help employees who have student loans and are making monthly loan payments. Employees with student loan debt often have to prioritize repaying their loans over contributing to their workplace retirement plan, which can mean missing out on potential employer retirement matching contributions. Starting in 2024, employers will have the option to treat an employee’s student loan payments as payments made to a qualified retirement plan (student loan payments will be considered “elective deferrals”), which would make those contributions eligible for an employer retirement match (if the employer offers this benefit).
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Prepared by Broadridge. Edited by BFSG. Copyright 2023.
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