If you find yourself in a situation where you no longer need your 529 plan for education expenses, converting it to a Roth IRA may be a smart financial move.
One of the significant advantages of a Roth IRA is the potential for tax-free growth and withdrawals in retirement. By converting your 529 plan to a Roth IRA, you can continue to grow your savings tax-free, allowing your investments to potentially accumulate more wealth over time. Unlike a 529 plan, which restricts funds to qualified education expenses, a Roth IRA offers greater flexibility in how you can use the funds. Converting your 529 plan to a Roth IRA allows you to access the funds for various purposes, such as retirement, purchasing a home, or even funding a business venture.
Converting your 529 plan to a Roth IRA can also provide estate planning advantages. While 529 plans are typically included in the calculation for financial aid eligibility, Roth IRAs are not. By converting your 529 plan, you may potentially reduce the impact on financial aid eligibility for yourself or your beneficiaries. Another benefit is the ability to pass the account to a beneficiary which in a 529 plan you can not do. Unlike traditional IRAs or 401(k) plans, Roth IRAs do not require minimum distributions during your lifetime. This means you can maintain control over your funds and continue to let them grow tax-free for as long as you wish, providing greater flexibility in retirement planning
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Contributions to a Roth IRA may generally be withdrawn tax-free at any time. Earnings may generally be withdrawn income tax-free if the individual has held amounts in a Roth IRA for at least 5 years and the withdrawal is made after age 59 ½. If the withdrawal is made before the 5-year period and age 59 ½, income taxes and an additional 10% federal income tax penalty may apply. Other exceptions may apply. The information provided is based on our general understanding of federal income taxation and is for illustrative purposes only. Please consult your tax and/or legal advisors regarding your particular circumstances. Duly-registered and duly-licensed financial professionals offer securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC (Equitable Financial Advisors in MI & TN); offer investment advisory products and services through Equitable Advisors, LLC, an SEC registered investment advisor; and offer annuity and insurance products through Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC in CA; Equitable Network Insurance Agency of Utah, LLC in UT; Equitable Network of Puerto Rico, Inc., in PR). Equitable Advisors and Equitable Network are affiliates and do not provide tax or legal advice or services. PPG-6659806.1b (5/24) (Exp. 5/26)