Leveraging 529 plans and Roth IRAs – Make your child a Millionaire

Imagine transforming your child’s 529 college savings into a potent seed for future wealth. The SECURE Act 2.0, taking effect at the start of 2024, has opened an unprecedented avenue for parents. You can now leverage unused 529 funds to fuel your child’s Roth IRA. Starting their Roth early has the potential to set them on the path to millionaire status.

The Evolution of 529 Plans

Historically, 529 plans were designed as a tax-advantaged way to save for education, covering expenses from tuition to books. Yet, life is unpredictable. Scholarships, career choices, or simply efficient saving might mean leftover funds in your child’s 529 plan. Previously, your options were limited—perhaps reallocate the funds to another family member or face withdrawal penalties.

A Revolutionary Shift with SECURE Act 2.0

So what do you do if your child has surplus 529 funds? Instead of letting these funds sit or incurring penalties, the SECURE Act 2.0 empowers you to make a strategic move: transferring up to a lifetime limit of $35,000 from the 529 plan to a Roth IRA in your child’s name. This isn’t just any transfer; it’s an investment in your child’s future, enabling tax-free growth and withdrawals.

Crafting a Millionaire Blueprint

Let’s break down the numbers. If you shift $7,000 annually for five years from their 529 to their Roth IRA (which is the Roth’s annual contribution limit up to the $35,000 cap) what happens? Assuming an optimistic 9% annual growth, akin to the S&P 500’s historical performance, that initial $35,000 blooms into $41,892 in just five years. Leave that growing for 40 years without additional contributions, and you’re looking at an astounding $1,315,803. 

In a traditional retirement account, a significant slice of this pie would go to taxes. However, the Roth IRA stands as a fortress against future taxation, promising your child the entirety of their million-dollar nest egg tax-free.

A Vision for Your Child’s Financial Freedom

This strategy isn’t just about numbers; it’s about empowering your child with financial independence and foresight. You’re not only supporting their education but also ensuring they step into adulthood with a robust financial foundation. By intertwining the benefits of 529 plans and Roth IRAs, you’re gifting your child an invaluable head start towards a prosperous, secure future. 

Engage in this transformative financial journey today, and watch your child’s financial narrative unfold into one of empowerment, growth, and millionaire potential.

Disclosure

M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. As a fee-only firm, we do not receive commissions nor sell any insurance products. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. 

This blog has been provided solely for informational purposes and does not represent investment advice. Nor does it provide an opinion regarding fairness of any transaction. It does not constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy.

Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.