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New law would help Illinois families to convert leftover college savings into retirement funds
The Illinois State Treasurer is pushing a new law to help families set money aside for their children.
SPRINGFIELD, Ill. - The Illinois State Treasurer is initiating a new effort aimed at assisting parents who have leftover funds in their college savings accounts.
The proposed legislation would allow parents to transfer the remaining balance from their Bright Start and Bright Directions accounts into a Roth IRA.
Treasurer Michael Frerichs emphasizes that this initiative seeks to provide parents with additional financial choices for the future, with the transferred funds earmarked for their child's retirement.
This option became viable after Congress approved a measure in December 2022, which amended the Internal Revenue Code to permit tax and penalty-free rollovers, effective January 1 of this year. However, for this option to be available to families in Illinois, state lawmakers must pass legislation to incorporate the change into state law.
Federal law imposes certain limitations on rollovers, including a lifetime cap of $35,000 on transfers and a requirement that rollovers must benefit the beneficiary of the college savings account, rather than the account owner (typically the parent or guardian).