529 to Roth IRA Rollover

One big change from Secure Act 2.0 was the allowance of money to be rolled from a 529 account to a Roth IRA beginning in 2024.

There’s a lot of fine print, which we’ll cover in a minute. But if you do everything correctly, you will be able to transfer up to $35,000 in your lifetime from a 529 account to your Roth IRA.
That lifetime $35,000 limit is per person.

And, you can do this transfer regardless of your income. Which is a big potential benefit for high income households who earn too much to be able to do regular Roth IRA contributions.
Here’s the fine print you need to know about in order to take advantage of this.

First, the 529 must have been opened for 15 years before you do the transfer to a Roth IRA. And, no 529 contributions, or earnings from contributions from the last 5 years are allowed to be transferred.
Next, the owner of the Roth IRA must be the beneficiary of the 529. Most 529s are set up with a parent or grandparent as the owner and the child or grandchild as the beneficiary. That means the money can only go into the child or grandchild’s Roth IRA.

Then, any amount you roll over from a 529 will count towards your annual Roth IRA contribution limits and the owner of the Roth IRA must have income to qualify them for Roth IRA contributions in the year the transfers take place.

These rules make it necessary for long term planning in order to take advantage of this new benefit. But for those that do, this can result in an additional $70,000 in Roth IRAs for a household over the course of their life….(read more)

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529 to Roth IRA Rollover: What You Must Know to Transfer from a 529 to Roth

If you’re looking to transfer funds from a 529 account to a Roth IRA, there are a few important things you need to know. This article will provide you with a basic understanding of the process and highlight some crucial points to consider before making the transfer.

529 accounts are tax-advantaged education savings plans that allow families to save funds for future educational expenses. They are named after Section 529 of the Internal Revenue Code and help individuals to prepare for the costs of higher education. On the other hand, Roth IRAs are individual retirement accounts that offer tax-free growth and tax-free withdrawals in retirement.

While both these accounts serve different purposes, there are circumstances where it may make sense to rollover funds from a 529 to a Roth IRA. Here are a few things you should keep in mind:

1. Qualified Education Expenses: One of the essential things to consider is whether you will have enough funds to cover a beneficiary’s education expenses. Remember that withdrawing money from a 529 for non-educational purposes will result in taxes and penalties.

2. Tax Implications: Unlike 529 accounts, Roth IRA contributions are made with after-tax dollars, meaning you have already paid taxes on the funds. When rolling over funds from a 529 to a Roth IRA, keep in mind that you will owe taxes on the earnings you withdraw.

3. Contribution Limits: Roth IRAs have annual contribution limits, whereas 529 accounts typically do not. Ensure that you don’t exceed the annual contribution limit when moving funds to a Roth IRA.

4. Eligibility: Not everyone is eligible to contribute to a Roth IRA due to income restrictions. Make sure you meet the income requirements before initiating a rollover.

5. Beneficiary Changes: When rolling over funds from a 529 to a Roth IRA, make sure the new Roth IRA account is set up with the same beneficiary as the 529 account.

6. Consult with a Financial Advisor: Considering the complexities involved in transferring funds between accounts, it is essential to work with a qualified financial advisor or tax professional who can guide you through the process. They can help you understand the tax implications and determine if a rollover is the right move for your particular financial situation.

Keep in mind that there may be state-specific rules and regulations regarding 529 to Roth IRA rollovers, so it’s crucial to be aware of any potential state tax consequences or limitations.

In conclusion, transferring funds from a 529 account to a Roth IRA can be a strategic move for some individuals, but it’s not without its considerations. Make sure you understand the impact on taxes, contribution limits, and eligibility requirements before initiating a rollover. Consulting with a financial advisor will help ensure that you make an informed decision and optimize your long-term financial goals.