SAVING FOR A CHILD’S FUTURE

Ainvestment in higher education is an important investment in a child’s future, and a 529 college savings plan is one way to begin saving for those educational goals from an early age.

But what happens if the child doesn’t go to college? What if he or she receive scholarships or financial aid that covers all college expenses? You may wonder if you’re locking in funds for something the child may not use.

If you have reservations about putting money into a 529 account that may not be needed for education, a new rule in the recently passed SECURE Act 2.0 may help address those concerns.

The new distribution rule taking effect in 2024 will allow unused college savings from a 529 plan to be transferred to a Roth IRA.

The new distribution rule taking effect in 2024 will allow unused college savings from a 529 plan to be transferred to a Roth IRA. Some limitations will apply, which we’ll describe later in the article.

What are some of the advantages of a 529 plan?

Any growth on the account will be tax-deferred, and any distribution for educational expenses will be tax-free. A child may be the beneficiary of multiple 529 plans. For example, parents could begin one plan and grandparents could begin another. You can also change the beneficiary of a 529 plan from one child to another in your family.

by JACOB HOVENDICK rjfs branch manager

In the past, if a child didn’t end up needing all the funds placed in a 529 plan for education, options were more limited. If they didn’t change the beneficiary to another child, parents could withdraw the money. But they would have owed taxes on the withdrawal, and they may also have had to pay a penalty. The new rule in the SECURE Act 2.0 opens up a different path.

What are some of the advantages of a Roth IRA?

A Roth IRA can be a powerful, flexible tool for building a retirement nest egg. Money is contributed after taxes, but it grows tax-free, and withdrawals may be made tax-free after age 59 and a half.

Many families would like to begin funding Roth IRAs for their children from young ages, giving them a leg up on saving for the future. But if the children don’t have earned income, they can’t open Roth accounts.

The rule change may offer a kind of “best of both worlds” scenario. Parents can begin saving in a 529 plan, and switch it to a Roth later if the money isn’t needed for college.

The rule change may offer a kind of “best of both worlds” scenario. Parents or grandparents can begin saving in a 529 plan and switch it to a Roth IRA later if the money isn’t all needed for college.

How are farm/ranch families able to use Roth IRAs?

Farm families have additional options for helping their children save for the future. Not only can they create

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