Illinois parents have a new opportunity to roll over any remaining funds from their Bright Start and Bright Directions 529 College Savings Accounts into a Roth IRA. This exciting development comes as a result of a recent law signed by Treasurer Michael Frerichs. Now, parents can make the most of their savings and ensure a secure future for their children’s education.
According to a press release from the Illinois State Treasurer’s Office, state officials, including Frerichs, warmly welcomed this law which offers families an extra choice in handling any excess funds in their college savings accounts.
Starting from January 1, 2024, individuals can now roll over funds from college savings plans to Roth IRAs without incurring any tax or penalties. However, there are certain limitations and restrictions associated with this change. In order to facilitate this process on a state level, Illinois has made the necessary amendments to its laws, successfully implementing this new provision.
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Treasurer Michael Frerichs expressed gratitude towards Governor JB Pritzker and the sponsors of the legislation for their support. Frerichs conveyed his excitement at being able to provide parents with a solution for their unused college savings.
He also recognized that numerous parents had concerns regarding the appropriate course of action for their remaining 529 funds in the event that their child did not pursue higher education or was awarded a scholarship.
Illinois parents used to have limited options for what to do with leftover 529 funds. They could either pass them on to another family member, transfer them to an Illinois ABLE account, or face tax consequences by making a nonqualified withdrawal. However, the introduction of a new law has now provided parents with an additional and advantageous choice. This choice allows them to make a withdrawal without incurring the usual penalties associated with such actions.
Federal regulations place certain restrictions on these rollovers. Transfers are subject to a lifetime limit of $35,000, and they must be directed to the beneficiary of the 529 account, not the account owner.
Furthermore, to be eligible for rollover, the funds must originate from accounts that have been active for a minimum of 15 years. It is important to note that no new contributions or earnings within the last five years will be considered for rollover.
