CHAMPAIGN, IL (Chambana Today) – Illinois has enacted a new law to convert leftover 529 savings to a Roth IRA. Parents can now convert unused funds from their Illinois 529 College Savings Accounts (Bright Start and Bright Directions) into Roth IRAs.
State Treasurer Michael Frerichs expressed his gratitude for the bipartisan support that made this initiative a reality. “This law gives parents another option for the money they’ve saved if their children don’t use all of it for college,” said Frerichs. He extended special thanks to State Sen. Steve Stadelman and State Rep. Diane Blair-Sherlock for sponsoring the bill.
In December 2022, Congress approved changes to Section 529 of the Internal Revenue Code. This amendment allows tax- and penalty-free rollovers from college savings plans to Roth IRAs, starting January 1, 2024. Illinois lawmakers had to update state legislation to extend these benefits to Bright Start and Bright Directions account holders.
Illinois’s new law complements existing options for unused 529 account funds. Parents could already allocate funds for another family member’s education, transfer to an Illinois ABLE account, or withdraw with potential tax implications. However, the Roth IRA rollover offers a unique tax-efficient alternative. Rollovers can only be made from 529 accounts held for at least 15 years, excluding contributions or earnings accrued in the last five years. Furthermore, the rollover must be made to the beneficiary’s Roth IRA, not the account owner’s.
The Bright Start and Bright Directions 529 College Savings Programs provide flexible and tax-efficient ways to save for educational expenses. Managed by the Illinois State Treasurer, these programs offer solid financial backing without guarantees or insurance from federal or state agencies.