🚨NEW LAW🚨 — How To Backdoor $35,000 into a Tax-free Roth IRA For Your Children!

As you may know, I’m not a huge fan of 529 Plans.

They lack the flexibility to save for education and other financial goals.

529 Plans seem like a great deal because of their tax-free nature, but if the money isn’t used for education, it does get taxed (and penalized heavily)!

For this reason, there are other tools I normally recommend using to save for education with quite a bit more flexibility.

However, there is a new law that goes into effect at the end of 2023 that provides a much more compelling reason to use a 529 plan as an additional savings vehicle.

It really brings about an opportunity to increase the capacity of positioning your children now for a tax-free retirement (which in my opinion is the holy grail of financial planning).

Roth IRAs are one of the best vehicles for accumulating tax-free money, however, for young children there are lots of limitations for them being able to contribute (or for you being able to contribute for them).

BUT, if you start accumulating tax-free money in a 529 plan right now, you can systematically backdoor $35,000 into a Roth IRA down the road (for your children)!

This is a wonderful way to escape the limitations of the education-only nature of 529 plans (since you won’t necessarily be using the money for education, but rather to build another bucket of wealth for your children in a completely tax-free way).

Roth IRAs offer a lot more flexibility than most retirement accounts because you can access your money for things like buying a house (with no penalties either).

Plus, the nature of Roth IRAs means that every single dollar you pull out of Roth IRA in the future will be 100% tax-free (including all of the investment growth).

So, the earlier you can get money into a Roth IRA the more tax-free wealth you can build!

I talk with retirees all of the time about Roth conversions and moving money from a taxable environment to a tax-free environment as a way to also collect their social security check completely tax-free but imagine positioning your children for this before they’re even old enough to drive! 😏

It really is a compelling new strategy.

And as you know, positioning yourself for a tax-free retirement is the best way to maximize your retirement by simply minimizing your partnership with the federal government.

There are some things to be aware of regarding this new law, but here are some of the key eligibility criteria and restrictions for moving a 529 to a Roth IRA:

☑️ This part of the SECURE 2.0 Act will become effective after December 31, 2023.

☑️ The 529 plan must have been open for a minimum of 15 years.

☑️ Changing beneficiaries to another student may restart the 15-year clock.

☑️ The owner of the Roth IRA must be the beneficiary of the 529 plan (i.e., the student).

☑️ Any money moved from a #529plan to a Roth IRA account will be subject to Roth IRA annual contribution limits. The #RothIRA contribution limit in 2024 is scheduled to be $6,500, with an extra $1,000 allowed for individuals over age 50.

☑️ The lifetime limit is $35,000.

There are limitations, and this is very new, but this is another tool for wealth-building and putting your children in a great position with money (especially tax-free money) for their financial future!💯