Unused Funds from MD 529s Can Now Be Rolled Over to IRAs

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As of January 1, 2024, Maryland 529 college savings plan account holders have a new way to access their saved funds—under the Secure 2.0 Act, unused funds from MD 529 plans can now be rolled over to IRAs.  

Here is a brief overview of the MD 529 plan and how this change could impact you.  

What is the MD 529 Plan? 

The Maryland 529 plan, named after Section 529 of the Internal Revenue Code, is a tax-advantaged education savings program in Maryland that helps families save for their children’s future qualified education expenses. 

Some of these qualifying expenses include: 

• College Tuition 

•  K-12 tuition 

• Apprenticeship programs 

• Student Loan Repayments 

Changes to MD 529 Plans Under the Secure 2.0 Act  

529 Rollovers for Roth IRAs 

As of January 2024, MD 529 account beneficiaries can now make limited tax-exempt rollovers to Roth IRAs. These rollovers must meet the eligibility requirements and remain within certain contribution limits to be deemed tax-exempt.  

Eligibility Requirements  

To qualify for a tax-free rollover to a Roth IRA, the 529 account must meet the following criteria: 

• Account Age: The 529 plan must have been open for at least 15 years. 

• Contribution Timing: Only contributions (and their earnings) made to the plan more than five years prior are eligible for rollover. 

Contribution Limits 

There are two limitations on the amount you can rollover each year: 

• Annual IRA Contribution Limit: The amount rolled over cannot exceed the annual contribution limit for Roth IRAs, which is adjusted periodically by the IRS. 

• Lifetime Aggregate Limit: The total amount rolled over for a single beneficiary cannot exceed $35,000 throughout their lifetime. 

Potential Tax Implications  

Funds rolled over from a qualified 529 plan to a Roth IRA following the guidelines above are considered tax-free. This means you won't owe any federal income taxes on contributions or earnings that meet the eligibility criteria. 

It’s crucial to note that failing to meet these qualifications could result in tax penalties when rolling over a 529 plan to a Roth IRA. Before making any decisions, be sure to consult a tax professional. 

What’s Next 

Understanding the eligibility criteria, contribution limits, and tax implications will help you determine whether this rollover strategy aligns with your long-term financial goals. 

Have questions about MD 529 plans or if you’re eligible for a tax-exempt rollover? Our individual tax experts are here to help. Contact Us.