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Weekly Market Commentary

3/26/2024

Are You Missing Out on the New 529 to Roth IRA Transfer? Discover the Details

As a parent or relative of a young child, you may be wondering how much to fund for college and what will happen to those funds if the child does not use them or decides to pursue a non-qualifying education expense. Fortunately, as part of the Secure Act 2.0 passed by Congress in 2022, beneficiaries have an option to convert funds in a 529 plan to a Roth IRA. However, there are some qualifying details to keep in mind.

  • Account Beneficiaries only. A rollover can only be made to the Roth IRA beneficiary – not the owner of the 529 account (if different).

  • Holding period. The 529 account must have been in existence for a minimum of 15 years before rolling funds to a Roth IRA. Contributions made to the 529 plan in the last five years before distributions start – including the associated earning – are ineligible for a tax-free rollover.

  • Lifetime limits apply. There is a lifetime limit of $35,000 which can be rolled over per beneficiary.

  • Annual IRA contribution limits apply. For example, the 2024 contribution limit is $7,000 ($8,000 if the beneficiary is age 50-plus). If you wanted to roll over the entire $35,000 lifetime limit amount, you would have to do it over five years under current contribution limits. Also, keep in mind the annual amount eligible for rollover is reduced by any actual traditional or Roth IRA contributions made for that year. The beneficiary must also have earned income at least equal to the amount of the rollover. Conversely, regular Roth IRA contributions cannot be made if modified Adjusted Gross Income (MAGI) exceeds an applicable threshold, however, this limitation does not apply to 529-Roth IRA rollovers.

  • To convert funds from a 529 plan to a Roth IRA, the 529 plan must be owned by the beneficiary for at least 15 years prior to the conversion, and the name on the 529 must be the same as the Roth IRA owner. The conversion is limited to the annual Roth IRA contribution limits, making this a multiyear strategy of conversion. The amount of funds converted also may not exceed the aggregate amount contributed to the 529 in the five years prior to the Roth IRA beginning conversion date.

If you’re concerned about the assets in an overfunded 529 plan, keep in mind you also have a few other options. Account owners can switch designated beneficiaries at any time and continue using a 529 account for qualifying educational purposes. Plus, up to $10,000 of 529 plans funds can be used to pay off qualifying student loans. Finally, if the child earns a tax-free scholarship, you can take an equivalent amount out of the 529 plan without the 10% penalty (though the earning portion of the distributions will be taxable).

Let's Team Up

In conclusion, transferring your 529 to a Roth IRA can be a smart financial move if your child decides not to attend college or if you have excess funds in the 529 plan. It's important to understand the eligibility requirements, taxes, limits, timing, and process involved in the transfer. By following these guidelines, you can make the most of your college savings plan and secure your retirement. Team up with us to determine if this strategy suits you in your specific situation.
 
Note: Due to Good Friday, next week we will not be distributing Weekly Market Commentary. 
 
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All major averages were positive on the week with the NASDAQ leading the way (2.86%) followed by the S&P 500 (2.31%) and finally the Dow Jones Industrial Average (1.97%). Mid- and small-cap stocks also performed well, returning 2.05% and 1.61%, respectively. International markets were also positive with developed markets (1.21%) outpacing emerging markets (0.51%). Bonds resumed a string of positive returns after faltering last week. Fixed income markets were up domestically, internationally, and across the credit spectrum.

 
Boeing CEO Dave Calhoun to Step Down in Wake of Ongoing Safety Problems: Boeing CEO Dave Calhoun said Monday he intends to leave the beleaguered company by the end of the year in a major shakeup of the company’s leadership. Boeing’s chairman and the head of the commercial airplane unit are also leaving. Boeing’s chairman, Larry Kellner, will not stand for re-election as a board director. The board has elected former Qualcomm CEO Steve Mollenkopf to succeed him. Boeing has been buffeted by more than five years of problems with its airplanes, including two fatal crashes of the 737 Max in 2018 and 2019 that killed 346 people, and most recently a door plug that blew out of the side of an Alaska Airlines 737 Max in January, leaving a gaping hole in the side of the plane.


Track how many perfect NCAA brackets are left in 2024: The final perfect men's bracket has fallen. No. 8 Utah State defeated No. 9 TCU 88-72 to eliminate the last perfect bracket among major online games: Men's Bracket Challenge Game, ESPN, CBS, and Yahoo. The men's tournament started with more than 31 million entries. Going into Friday, we were left with more than 2,100 perfect brackets. But on game No. 31 of the tournament, the Aggies defeated the Horned Frogs and also took down the last perfect bracket.

Last year, the last perfect women's bracket fell when Stanford — then a No. 1 seed — suffered a shocking second-round defeat. The Cardinals did not let history repeat itself, defeating No. 7 Iowa State 87-81 in a thrilling overtime affair that lasted late into Sunday night (or early Monday morning for those on Eastern Standard Time), keeping their postseason hopes and the final 18 remaining perfect women's brackets alive. We began the tournament with more than four million entries. Last year, the final perfect bracket was busted in the 40th game of the tournament — 40 games in, the quest for perfection will continue Monday.

Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.
 
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

The statements provided herein are based solely on the opinions of the Osaic Research Team and are being provided for general information purposes only. Neither the information nor any opinion expressed constitutes an offer or a solicitation to buy or sell any securities or other financial instruments. Any opinions provided herein should not be relied upon for investment decisions and may differ from those of other departments or divisions of Osaic Wealth, Inc. or its affiliates.

Certain information may be based on information received from sources the Osaic Research Team considers reliable; however, the accuracy and completeness of such information cannot be guaranteed. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein reflect the judgment of the Osaic Research Team only as of the date of this document and are subject to change without notice. Osaic has no obligation to provide updates or changes to these opinions, projections, forecasts and forward-looking statements. Osaic is not soliciting or recommending any action based on any information in this document.

Securities are offered through Securities America, Inc., a broker-dealer and member of FINRA and SIPC. Advisory services are offered through Securities America Advisors, Inc. Investment Service Center and the Securities America companies are not affiliated. [6503112]