New Law Lets Illinois Parents Roll Over Unused College Money to IRA’s
Illinois parents can now roll over leftover funds from their Bright Start and Bright Directions 529 College Savings Accounts into a Roth IRA, thanks to a new law signed by Treasurer Michael Frerichs.
Expanded Options for College Savings
This law will provide families with an additional option for managing any surplus funds in their college savings accounts, a feature that was warmly welcomed by Frerichs and other state officials, according to a press release from the Illinois State Treasurer's Office.
This change, effective January 1, 2024, allows tax and penalty-free rollovers from college savings plans to Roth IRAs, albeit with certain restrictions. To implement this at the state level, Illinois needed to amend its laws, which it has now successfully done.
READ MORE: SNL Star's Shocking Move from Rockford to Rehab
Treasurer Michael Frerichs thanked Governor JB Pritzker and the legislation’s sponsors for their support. “We’re excited to offer parents a solution for any unused college savings,” Frerichs said.
He also acknowledged that many parents had questions about what to do with leftover 529 funds if their child did not attend college or received a scholarship.
Limitations and Guidelines
Previously, Illinois parents had a few alternatives for leftover 529 funds: leaving them for another family member, rolling them over into an Illinois ABLE account, or making a nonqualified withdrawal, which carries tax implications. The new law adds a valuable choice without the penalty typically associated with such withdrawals.
Federal regulations do impose some limitations on these rollovers. There is a lifetime cap of $35,000 for transfers, and rollovers must be made to the beneficiary of the 529 account rather than the account owner.
Additionally, the funds must be from accounts that have been active for at least 15 years, with no new contributions or earnings in the last five years being eligible for rollover.
LOOK: 20 Outside-the-Box Uses for Vacant Big-Box Stores
Gallery Credit: Stephen Lenz
LOOK: The most popular dog names of 2022 in every state
Gallery Credit: Amber Spencer-Knowles