Have Unused 529 College Savings? Roll Them Into a Roth in 2024

A 529 college fund is a tax-advantaged savings account that is designed to help families save for their children’s college education. With the SECURE 2.0 Act, Congress expanded the ways you can use these accounts by introducing a new rollover option, which is especially helpful if the beneficiary has money left over after their education is complete.

Starting in 2024, a 529 plan account beneficiary will have the opportunity to roll over up to $35,000 from your 529 college savings plans into a Roth IRA – and the best part is it’s tax and penalty-free.

But there are some rules you’ll need to follow to take advantage of this retirement fund boost:



01 | Annual and Lifetime Contribution Limits



Any rollover from your 529 account is subject to annual Roth IRA contribution limits. For example, if in 2024 the Roth IRA contribution limit remains the same as in 2023 ($6,500 for individuals under 50), you can roll over an amount up to this limit, including yearly contributions withheld from your income. There is also a rollover contribution limit of $35,000 over your lifetime.

02 | The 15-Year Rule

To qualify for tax and penalty-free rollovers, the 529 plan must have been open for at least 15 years. This 15-year clock starts ticking from the day the 529 plan was initially opened, usually by a parent or grandparent. It’s crucial to remember that changing the beneficiary of the 529 plan at any point may potentially restart this 15-year clock.



03 | 5-Year Rollover Blackout


Funds that were contributed to your 529 plan within five years of the rollover date cannot be rolled over. Only contributions made outside of this five-year window are eligible. But, you can continue to rollover funds as time goes on and the 5-year window moves farther away from the most recent contributions.

Here’s an example of how these rules work in real life: Imagine your mother opened a 529 account for you in 2001. She contributed money to the account every year for 20 years, through 2020. When you graduated college in 2022, there were some funds left in the 529 account. You want to roll over these funds into a Roth IRA on January 1, 2024.

In this scenario, the account has been open for at least 15 years, so you can roll over funds into a Roth IRA, up to the annual contribution limit of $6,500 per year. But, the funds you roll over from the 529 cannot include funds your mother contributed in the 5 years before your rollover date of January 1, 2024. That means you can’t roll over funds contributed to the 529 account between January 1, 2019, and January 1, 2024.

Let’s look at another example: Your father opened a 529 college savings account for you in 1998 and contributed money to it every year until your graduation from trade school in 2015. Since graduation, you and your employer have contributed a total of $3,000 to your retirement account this year. There is $10,000 left in the account and you want to roll over the funds into a Roth IRA on January 1, 2024.

In this example, the account has been open for more than 15 years and all of the funds in the account were contributed to it more than five years ago, so all of the funds are eligible for a rollover. However, you can only contribute up to $6,500 to your retirement accounts annually. Because of this, you can only roll over a maximum of $3,500 from your 529 account into your Roth IRA this year if you or your employer don’t make any more contributions to your retirement this year. After the rollover, you’ll have $6,500 in your 529 account at the end of 2024.

In 2025, you’ll be able to roll over the remaining $6,500 from your 529 into your Roth IRA (if you make no other contributions from your income that year).

An Extra Bonus For Grandparent-Owned Accounts


In order to be considered for federal financial aid, students must disclose their personal and family financial information on the Free Application for Federal Student Aid (FASFA). Funds in a 529 account created by a parent are counted as a financial asset of the student on the FAFSA application.

But funds in a 529 account owned by a grandparent or other third party have never been counted as an asset for FAFSA purposes. Only money withdrawn from the account is considered untaxed income of the student which FAFSA considers in its application review.

The big news is that with the new Secure 2.0 Act, any withdrawals from a grandparent-owned 529 for education expenses will no longer be considered untaxed income of the student, which means the funds will not hurt the student’s eligibility for federal aid.


Planning for What’s Really Important

While you take steps to secure your financial future, don’t forget to protect everything you’ve worked so hard to build. Your retirement savings is likely the largest asset you own, and making sure it’s managed and passed on in the best way possible is essential for your well-being and the future well-being of those you love.

To make sure there’s a plan for your future, give our office a call. We’d be honored to learn more about your goals for your family and share with you the unique process we use to ensure everything you own and everyone you love is cared for, no matter what.

Schedule a free 15-minute discovery call to get started.



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Own a Business? Do This By December 31st to Get a Year-Long Extension To The Corporate Transparency Act Reporting Deadline

Business ownership is a fulfilling and exciting endeavor, but it also comes with rules, responsibilities, and reporting requirements that can be hard to track. If you own a small business or have a Trust that owns a business interest, you’ll need to comply with the Corporate Transparency Act (CTA) come January.

Beginning January 1, 2024, the Corporate Transparency Act (CTA) will require small companies to disclose the names of any owners who hold a 25% or more ownership interest in the company, as well as any individuals who exercise significant control over the company’s activities. This new rule also applies to Trusts that own or control a company.

If you or your family own a business or have a Trust that owns a business, you’ll be required to file a report under the CTA. And, if you plan to create a new company next year, your reporting deadline could be as soon as 30 days after the date of its creation.

There is a way to get more time to file the required report, but you need to act before the end of the year.

In this blog, I’ll share how to get a year-long reporting extension for your business that can give you more time to gather the required information needed to file the CTA report. But before I tell you how to gain the extension, it’s important to understand what the CTA is and how it will affect your business.



What The Corporate Transparency Act Means For Your Business



The Corporate Transparency Act (CTA) was enacted in 2020 to enhance corporate transparency and prevent money laundering, terrorist financing, and other financial crimes. By requiring businesses to report information about their owners and controllers, the Act seeks to make it easier to identify “shell” corporations – companies that don’t actually perform an active business or trade and which are often used to move money around illegally.

To comply with the Act, certain businesses including some corporations and LLCs will need to disclose the names of anyone who owns 25% or more of the company and any members of the company who have “substantial control” over the company’s activities to the Financial Crimes Enforcement Network (FinCEN). This includes anyone who owns or controls a company through their Trust.

In order to comply, a business must file an annual report with the following information on each owner or controller of the business:

  • Business name and current business address
  • State in which the business was formed and its Entity Identification Number (EIN)
  • Owner/controller’s name, birth date, and address
  • Photocopy of a government-issued photo ID (such as a driver’s license or passport) of every direct or indirect owner or controller of the company

If a company doesn’t file an annual report, it may be penalized with a $500 fine for every day the report is late and its owners could even face imprisonment for up to two years.



What Businesses Need to Report Under The CTA?


The new CTA rule applies to any company that is created by filing a formation document with the Secretary of State or a similar office, such as corporations and limited liability companies (LLCs).

Since money laundering and terrorist financing are usually conducted using small businesses, the Act largely aims to collect information on these companies, so entrepreneurs and small business owners should take extra care to meet the filing requirements.

Publicly traded companies, non-profits, and regulated companies like financial firms, accounting agencies, and banks are exempt from the rule. Large companies are also exempt if they have 20 or more full-time employees in the US and generate $5 million in sales. An LLC or corporation that isn’t actively performing a business or service is also exempt due to its inactivity.

When Do Businesses Need to File Their Report and How Can You Extend Your Deadline?


Here’s the thing about filing your annual report for the Corporate Transparency Act: If your company was created after January 1, 2024, you’ll need to file your report within 30 days of the company’s creation. But, if your company’s formation occurred on or before December 31, 2023, you have until January 1, 2025, to file its CTA report.

So, if you already have a business entity created, you have until January 1, 2025, to submit your report. This means if you’re thinking of creating a new company or changing the entity structure of an existing company, doing so before January 1, 2024, will give you a year-long grace period to file the report. Otherwise, once January 1 rolls around, it’ll be too late to take advantage of this extension.

Why does this extension matter?

The extension provides a valuable window of time for business owners to understand the reporting requirements thoroughly, gather the necessary information, and engage with legal professionals to ensure they’re in compliance with the Act without the pressure of a 30-day deadline.

The Act’s reporting rules seem straightforward, but the penalties for non-compliance can be substantial. Creating your new business entity by year-end provides a cushion against potential penalties and risks associated with overlooking or misunderstanding reporting requirements. It’s a proactive step that gives your business the advantage of time.


Helping You Make Strategic Moves for The Wellbeing of Your Family

If you own a family business or you’re thinking of creating a new business entity soon, I encourage you to do it NOW before the end of the year so you can take advantage of the year-long window to file your Corporate Transparency Act report for existing businesses.

And don’t wait until the end of December to get started, as we anticipate there will be a rush of new business entity filings at the end of December as business owners and their professionals rush to file their creation documents before the new year. If you need assistance filing your report or aren’t sure whether the CTA rule applies to your company, we can help.

As your Personal Family Lawyer® firm, our goal is to guide your family through every stage of life and every change in the law through an ongoing relationship with you. Our approach to serving clients doesn’t end when the paperwork is filed. We keep in touch with you and keep you abreast of any changes in the law so you can have peace of mind knowing that your family and assets are well cared for now and in the future.

Schedule a complimentary call with my office using the button below to learn more.



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What You Must Know About Your Right to Your Spouse’s Retirement Benefits

If you’re part of a blended family (meaning you are married with children from a prior marriage in the mix), you’re no stranger to the extra considerations and planning it takes to keep your family’s life running smoothly – from which parent your children will be with for the holidays to figuring out the schedule for a much-needed family vacation. You’ve also probably given some thought to what you want to happen to your assets and your family if something happens to you.

But what you might not have realized is this: If you don’t create a plan for your assets before you die, the law has its own plan for you that might not reflect your wishes for your assets, especially your retirement assets. And if you’re in a blended family, this can have a significant financial impact on the ones you love and even create expensive, long-term conflict.

This week, I explain how the law affects retirement distributions for married couples, and why you need to be extra careful with your retirement planning if you’re in a blended family to ensure your retirement account assets go to the right people in the right amounts after you’re gone.



Be Aware of How ERISA Affects 401K Distributions



If you’ve remarried, you and your new spouse have probably talked about updating the beneficiary designations on your retirement accounts to reflect your blended family arrangement. (If you haven’t talked about it, you need to talk about it ASAP). Sometimes, people who are remarried decide to leave their retirement funds to their children from a prior marriage and leave other assets like their house and savings accounts to their current spouse. You may do this to avoid future conflict between your spouse and your children over your assets.

But even if you want to leave your retirement for just your children, if you’re married and your retirement account is a work-sponsored account, your children won’t inherit the entire account even if you name them as the sole beneficiaries.

That’s because the federal Employee Retirement Income Security Act (ERISA) governs most employer-sponsored pensions and retirement accounts. Under ERISA, if you’re married at the time of your death, your spouse is automatically entitled to receive 50 percent of the value of your employer-sponsored plan – even if your beneficiary designations say otherwise.

The only time that your surviving spouse would not inherit half of your ERISA-governed retirement account is if your spouse signs an official Spousal Waiver saying they are affirmatively waiving their right to inherit 50 percent of the account, or if the account beneficiary is a Trust of which your spouse is a primary beneficiary.



IRAs Have Different Rules Than 401Ks


If you want your children to inherit more than 50 percent of your work-sponsored retirement benefits, and completing a Spousal Waiver isn’t an option, consider rolling the account into a personal IRA instead.

In contrast to 401(k)s and similar employer-sponsored plans, IRAs are controlled by state law instead of ERISA. That means that your spouse is not automatically entitled to any part of your IRA.

When you roll a 401(k) into an IRA, you gain the flexibility to name anyone you choose as the designated beneficiary, with or without your spouse’s consent.

On the other hand, if you want to ensure your spouse receives half of your retirement savings, make sure to include them as a 50 percent beneficiary or better yet, have your individual retirement account payout to a Trust instead. With a Trust, you can:

  • Document exactly how much of your retirement you want each of your loved ones to receive
  • Control when they receive the funds outright
  • Easily update and change the terms of your Trust without having to remember to update your financial accounts.

Beneficiary Designations Always Trump Your Will


Whether you have an employer-sponsored 401K or an IRA you manage yourself, there is one critical rule that everyone needs to know: beneficiary designations trump your Will.
A Will is an important estate planning tool, but most people don’t know that beneficiary designations override whatever your Will says about a particular asset.

For example, if your Will states that you want your retirement account to be passed on to your brother, but the beneficiary designation on the account says you want it to go to your sister, your sister will inherit the account, even though your Will says otherwise.

Similarly, let’s imagine that you get divorced and as part of your divorce decree your ex-spouse agrees that they will not have any right to your retirement fund. However, after the divorce, you forget to take their name off of the beneficiary designation for the account. If you die before updating the beneficiary designation, your former spouse will inherit your retirement account.

If you forget to update your ERISA-controlled account and have remarried, your current spouse would receive half of the account and your former spouse would receive the other half. That’s why it’s so important to work with an estate planning attorney who can make sure your accounts are set up with the proper beneficiary designations and ensure that your assets are passed on according to your wishes.


Work With An Attorney Who Makes Sure All Your Assets Will Be Passed On How You Want Them To

Understanding how the law affects different types of assets is essential to creating an estate plan. But there’s more to it than just having a lawyer – you need an attorney who takes the time to really understand your family and your assets so they can design a custom plan that achieves your goals for your assets and your legacy.

That’s why we help our clients create an inventory of all of their assets to ensure that every asset they hold is accounted for and passed on to their loved ones exactly as they want it to.

Learn more about how we serve our clients differently than most lawyers; schedule a complimentary call with us. We’d be honored to share how our unique process can help your family.



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Transition to Adulthood: What Happens Legally When My Child Turns 18?

Soon after the challenges of puberty and the excitement of high school, an even larger milestone looms: the 18th birthday. It marks your child’s transition from childhood to adulthood, and with it new responsibilities and rights. From a legal standpoint, this milestone also brings significant changes that every parent should be aware of.

In the eyes of the law, an individual is considered a legal adult at the age of 18. This means that your child gains certain rights and privileges, including the ability to enter into contracts, vote, buy property, and make medical decisions for themselves. While this newfound independence is a crucial part of growing up, it can also pose challenges for parents, especially when adult children need their parents’ help or need someone to make decisions on their behalf.

In this blog post, we’ll explore what happens legally when your child turns 18, what it means for your ability to make legal, financial and healthcare decisions on their behalf, and what tools you’ll need for a smooth transition to adulthood.



How The Law Changes Your Role As A Parent



On the day your child turns 18, your ability to make legal, financial and healthcare decisions for them essentially disappears in a blink. To give you a sense of how impactful this can be, if your now 18-year old or older child is hospitalized and unable to communicate their wishes, healthcare providers won’t even legally be able to share your child’s medical information with you. Similarly, financial institutions won’t permit you to access your child’s accounts or make financial decisions on their behalf without their consent – or unless you’re a co-owner of their accounts.

This shift in decision-making authority can feel unsettling and can be particularly challenging if your child is still financially dependent on you, is in a medical emergency, or requires assistance in managing their affairs due to a disability. Thankfully, there are legal tools that can help parents and young adults navigate these new challenges.



Have Their Back With Powers of Attorney



A Power of Attorney is a legal tool that allows your child to designate the person they choose to make legal or healthcare decisions on their behalf. There are two common types of Powers of Attorney that can be valuable in this situation: a General Durable Power of Attorney and a Power of Attorney for Healthcare.

A General Durable Power of Attorney allows your child to appoint someone to manage their financial affairs in the event they become incapacitated or if they just want help managing their finances. With this in place, you can continue to assist your child with financial matters, even after they turn 18.

The important thing to remember however is that not every financial institution will honor a Power of Attorney, so while every adult should have this legal tool, it’s important to check with your specific institution and possibly set up your child’s accounts in a different way to ensure you have immediate access to them if needed. We’d be happy to discuss which options are best for you and your adult child.

A Power of Attorney for Healthcare grants someone the authority to make medical decisions on your child’s behalf if they are unable to do so, such as medication and treatment options, nutritional needs, and life-support measures. This is crucial to ensure that your child receives the care they want, even if they cannot communicate their preferences.

Only your child can put these measures in place, but encouraging them to create these legal documents is a proactive step in maintaining your ability to assist them when they need it most.


Stay Informed With a HIPAA Waiver


The Health Insurance Portability and Accountability Act (HIPAA) is a federal law that protects the privacy of individuals’ medical records. Once your child turns 18, their medical information is protected under HIPAA, and healthcare providers are prohibited from disclosing it to anyone without the patient’s explicit consent – parents and family members included.

To maintain access to your child’s medical information, they must complete a HIPAA waiver. This document permits healthcare providers to share medical information with individuals specified in the waiver, such as parents or trusted family members.

Having a HIPAA waiver in place can be invaluable during medical emergencies when swift access to medical records is critical. It can also be a valuable tool for young adults who may simply appreciate a parent’s ability to speak to their doctors when they aren’t feeling well or are overwhelmed with the demands of work, college, or both.


Support Their Journey Into Adulthood Through Open Communication


Transitioning to adulthood is a significant step for both parents and children. While legal documents such as Powers of Attorney and a HIPAA Waiver are essential, it’s equally important to have open and honest conversations with your child about their wishes and the responsibilities that come with adulthood.

Discuss their healthcare preferences, financial decisions, and their expectations from you as a parent. Encourage them to consider creating these legal documents not only for your peace of mind but also for their own protection.

We invite you to reach out to our firm at any time, but if you have a teen who is approaching adulthood, reach out to us right away to ensure your child has the legal support and protection they need no matter what adulthood brings.

And if you aren’t sure how to talk with your adult child about these legal tools, we can help you start the conversation from a place of love, compassion, and collaboration.

Schedule a complimentary call today to get started, and when you do ask about our special offer of free legal documents for your young adult, when you schedule your own Life & Legacy Planning Session with us.

To get started, click here and schedule a complimentary 15-minute call.

Year-End Tax Planning Starts Now: 8 Things To Do Now to Lower Your 2023 Taxes – Part 2

Last week we looked at four different ways to lower your tax liability for 2023, from adjusting your tax withholding to strategically planning your medical procedures. In this week’s blog, we discuss four more tax-saving methods you can use right now to owe fewer taxes come April 2024.



Make Charitable Gifts



Giving back to your community or supporting causes you care about is not only rewarding but can also provide tax benefits if your family’s tax deductions are close to exceeding the standard tax deduction.

The standard deduction for 2023 is $12,950 for individuals and $25,900 for married couples filing jointly. Remember that the total of your itemized deductions, including charitable contributions, must exceed the standard deduction for your filing status to provide a tax benefit.

If you’re nearing the top of the standard deduction threshold, this year may be a great time to contribute to a charitable organization that is important to you. Doing so will help support a good cause and allow you to make itemized deductions for an extra reduction in your taxable income for the year.

If you make any charitable donations, keep detailed records of your donations, including receipts and acknowledgments from the charities. If you donate non-cash items (such as clothing or household goods), make sure to document their fair market value.

If you aren’t sure how to document your donations or aren’t sure if a charitable donation will be advantageous to you this year, be sure to discuss this with your tax professional.



Consider Tax-Loss Harvesting



Tax-loss harvesting is a strategy designed to offset capital gains by selling underperforming investments. This technique can help you minimize the taxes you owe on your investment gains.
The first step is to identify investments in your portfolio that have experienced losses and then sell those investments to realize the losses. After all, you haven’t actually lost or gained capital until the money enters or leaves your portfolio.

By selling underperforming investments, you can now use the lost capital to offset any capital gains from other investments that are doing well. Losses can be used to offset up to $1,500 for individuals filing separately or up to $3,000 for couples filing jointly.

It’s important to remember that there are rules and limitations when it comes to tax-loss harvesting. Consult with a financial advisor or tax professional to ensure you execute this strategy correctly and in a way that aligns with your overall financial goals.


Pay Your January Mortgage Payment in December


If you’re a homeowner with a mortgage, making your January mortgage payment in December can provide a valuable tax advantage. Mortgage interest is deductible on your income tax return, and prepaying your January mortgage payment in December gives you an extra month of interest to deduct on your 2023 taxes.

However, before implementing this strategy, check with your mortgage lender to ensure that they apply the payment correctly. Some lenders may automatically apply extra payments to your principal balance rather than counting them as interest for the next month.


Max Out Your IRA (Individual Retirement Account) or Roth IRA


Retirement planning is crucial for long-term financial security, and IRAs are excellent vehicles for saving for your golden years. For the 2023 tax year, the maximum contribution limit for both traditional and Roth IRAs is $6,500, with an additional $1,000 allowed for those aged 50 or older. It’s essential to understand the differences between these two types of IRAs to choose the one that suits your needs best.

Traditional IRA contributions may be tax-deductible, potentially reducing your taxable income for the year. However, withdrawals in retirement are subject to taxation.

Roth IRA contributions are made with after-tax dollars, so they don’t provide an immediate tax deduction. However, qualified withdrawals in retirement are entirely tax-free.

By maximizing your contributions to your IRA of choice, you can secure a more comfortable retirement and possibly reduce your tax liability for this year.


The Foundation of Life-Long Support and Security


Proactive year-end tax planning can significantly impact your financial well-being. By implementing these eight tax-saving strategies, you may be able to keep more money in the bank and take a step toward a brighter financial future.

But good money management is only one part of the equation for a life you love and a legacy that will guide and support your family for generations to come.

Making the best strategic decisions to protect your family’s health, finances, and happiness is equally, if not more, important. If you want to make sure that both your financial and personal life are in order today and structured to give your family the best support possible tomorrow, give us a call.

We would be honored to help you protect everything you own and everyone you love through our heart-centered estate planning services.

To get started, click here and schedule a complimentary 15-minute call.