Start Your College Grad on the Path to Becoming a Millionaire

You may be able to do this utilizing any unused funds in the student’s 529 Plan. The IRS now allows rollovers of these funds to a Roth IRA in the child’s name.


You must have owned the 529 account for at least 15 years before rollovers are allowed. Contributions made in the five years before distributions start — including the associated earnings — are ineligible for a tax-free rollover. Rollovers can’t exceed the 2024 annual Roth contribution limit ($7,000/$8,000 for ages 50 and older).

The lifetime 529 rollover limit is $35,000, so you’d have to do a rollover annually for several years. As the owner of the Roth IRA, your graduate must have earned income at least equal to the amount of the annual rollover.


Look at the hypothetical example (chart) of making rollovers of $35,000 in remaining funds over five years. It assumes the annual contribution limit remains $7,000, your child makes no additional contributions, and the IRA earns a hypothetical 7% compounded interest monthly for 45 years. Consult your tax advisor about your situation.

Roth 401(k) Contribution Reprieve

Relief is here for 401(k) plan sponsors, participants and administrators. The SECURE 2.0 Act initially stated that employees aged 50 and older who earned $145,000 or more in 2023 could only make catch-up contributions to Roth 401(k) accounts in 2024 and later. However, IRS Notice 2023-63 postpones the new catch-up contribution rule for two years until January 1, 2026.


The notice also fixed a glitch in the law that inadvertently deleted part of the tax code, so it reads as if the ability for any employees to make catch-up contributions is eliminated beginning in 2024. The IRS says it will allow these catch-up contributions to be made, even though Congress did not fix this error in the law.


The IRS expects to provide future guidance saying that the mandatory Roth 401(k) catch-up provision does not apply to high-paid self-employed persons who have self-employment income instead of W-4 wages.

Roll Over Excess 529 Funds to a Roth IRA

Starting in 2024, 529 educational savings plans will become even more attractive with enhanced tax benefits. If your student receives scholarships or joins the military, there is a new option for handling excess 529 plan funds.


The SECURE Act 2.0, which became law late in 2022, enables 529 beneficiaries to place unused 529 funds into their Roth IRA – without penalty. Understand that the rollover can only be made to the 529 beneficiary’s Roth IRA – not a parent’s Roth IRA.

This new rule can have an incredible impact on the student’s ability to successfully fund a comfortable retirement, thanks to the power of compound interest.


You still have the option of changing a 529 plan beneficiary to another qualifying family member. But the funds would have to be used for educational purposes. Alternatively, you could withdraw excess funds and pay a 10% penalty.


As with most tax laws, numerous rules govern a 529 plan to Roth IRA rollover. Keep these in mind:

  • A max of $35,000 can be rolled over from a 529 plan to a beneficiary’s Roth IRA.
  • Annual Roth IRA contribution limits apply to rollovers. (For example, if this law was already in effect, the 2023 ROTH IRA contribution limit is $6,500, which means it would take six years to convert $35,000 from a 529 plan to a Roth IRA).
  • Conversions can only be made to a beneficiary’s Roth IRA; a parent saving with a 529 plan in a child’s name cannot convert unused funds back into their own retirement account.
  • Rollovers are not allowed until a 529 account has been open for at least 15 years.
  • Funds you convert from 529 plans to Roth IRAs must have been in the account for at least five years.

Consult your tax professional to learn more.

Simple retirement savings options for your small business

Are you thinking about setting up a retirement plan for yourself and your employees, but you’re worried about the financial commitment and administrative burdens involved in providing a traditional pension plan? Two options to consider are a “simplified employee pension” (SEP) or a “savings incentive match plan for employees” (SIMPLE).

SEPs are intended as an alternative to “qualified” retirement plans, particularly for small businesses. The relative ease of administration and the discretion that you, as the employer, are permitted in deciding whether or not to make annual contributions, are features that are appealing.

Uncomplicated paperwork

If you don’t already have a qualified retirement plan, you can set up a SEP simply by using the IRS model SEP, Form 5305-SEP. By adopting and implementing this model SEP, which doesn’t have to be filed with the IRS, you’ll have satisfied the SEP requirements. This means that as the employer, you’ll get a current income tax deduction for contributions you make on behalf of your employees. Your employees won’t be taxed when the contributions are made but will be taxed later when distributions are made, usually at retirement. Depending on your needs, an individually-designed SEP — instead of the model SEP — may be appropriate for you.

When you set up a SEP for yourself and your employees, you’ll make deductible contributions to each employee’s IRA, called a SEP-IRA, which must be IRS-approved. The maximum amount of deductible contributions that you can make to an employee’s SEP-IRA, and that he or she can exclude from income, is the lesser of: 25% of compensation and $58,000 for 2021. The deduction for your contributions to employees’ SEP-IRAs isn’t limited by the deduction ceiling applicable to an individual’s own contribution to a regular IRA. Your employees control their individual IRAs and IRA investments, the earnings on which are tax-free.

There are other requirements you’ll have to meet to be eligible to set up a SEP. Essentially, all regular employees must elect to participate in the program, and contributions can’t discriminate in favor of the highly compensated employees. But these requirements are minor compared to the bookkeeping and other administrative burdens connected with traditional qualified pension and profit-sharing plans.

The detailed records that traditional plans must maintain to comply with the complex nondiscrimination regulations aren’t required for SEPs. And employers aren’t required to file annual reports with IRS, which, for a pension plan, could require the services of an actuary. The required recordkeeping can be done by a trustee of the SEP-IRAs — usually a bank or mutual fund. 


Another option for a business with 100 or fewer employees is a “savings incentive match plan for employees” (SIMPLE). Under these plans, a “SIMPLE IRA” is established for each eligible employee, with the employer making matching contributions based on contributions elected by participating employees under a qualified salary reduction arrangement. The SIMPLE plan is also subject to much less stringent requirements than traditional qualified retirement plans. Or, an employer can adopt a “simple” 401(k) plan, with similar features to a SIMPLE plan, and automatic passage of the otherwise complex nondiscrimination test for 401(k) plans.

For 2021, SIMPLE deferrals are up to $13,500 plus an additional $3,000 catch-up contributions for employees age 50 and older.

Contact us for more information or to discuss any other aspect of your retirement planning.

© 2021

Is a Roth Conversion Right For You?

Roth IRAs offer many benefits, including federal income tax-free withdrawals, provided you follow the rules. You can convert a traditional IRA to a more flexible Roth IRA, but it will trigger a significant taxable event.


Because contributions to a traditional IRA are tax deductible and earnings are tax deferred, you’ll have to pay income taxes on all the funds you transfer in the year you execute the conversion. In a perfect world, you would pay taxes out of pocket, leaving more in your Roth IRA to continue to grow—income tax-free.


Traditional IRAs have required minimum distributions (RMDs) — and paying income taxes on those RMDs — every year after you reach age 72, (age 70½ if you attained age 70½ before 2020).* You have to take RMDs and pay the taxes even if you don’t need the money.

Roth IRAs have no RMD requirement. In general, you can withdraw earnings without penalties or federal taxes as long as you’re 59½ or older and you’ve owned the account for at least five years. (Some exceptions apply.)


A Roth IRA may be right for you if:

  • You believe your tax rates will be higher in the future;
  • Your income may be lower than usual this year;
  • Your IRA account value is lower this year, due to the pandemic;
  • You don’t need the money to live on for at least five years;
  • You want to leave the money to your heirs;
  • You are concerned about estate taxes.


A Roth conversion may not be the best strategy if:

  • You will need the money within five years;
  • You’re in a higher tax bracket now than you expect to be in retirement.

Consult your tax and financial professionals before taking action.

*The CARES Act suspended RMDs for 2020.