The SECURE ACT 2.0 was passed and allows for 529 plan distributions to be rolled over into a Roth IRA. Of course, there are certain provisions to be followed:
-Must be in the name of the beneficiary
-529 plan must be maintained for 15 years
-Can only rollover amount equal to current years maximum contribution of a Roth
-Beneficiary must have earned income equal to the rollover amount not to exceed the years maximum contribution
-Can not include contributions to 529 plans made in the last 5 years
-Aggregate amounts can not exceed $35,000

This creates great planning opportunities for 529 plan owners!

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As a parent, you always want the best for your child. One way to secure your child’s future is through a 529 plan, a tax-advantaged savings plan specifically designed for higher education expenses. However, what happens if your child doesn’t need all the money you’ve saved in the 529 account? Or what if you want to repurpose the funds for something else?

This is where rolling over a 529 plan to a Roth IRA comes in handy. The Roth IRA is a retirement account that offers tax-free withdrawals in retirement. So, if your child doesn’t need the money for college, you can transfer the funds to a Roth IRA account and invest them for retirement.

Here are the steps to roll over a 529 plan to a Roth IRA:

1. Determine if you’re eligible for a conversion: If your modified adjusted gross income (MAGI) is less than $140,000 ($208,000 if filing jointly), you can convert your 529 plan to a Roth IRA. If your MAGI is higher than that, you can still do a partial conversion.

2. Open a Roth IRA account: You’ll need to open a Roth IRA account with a brokerage firm or financial institution. You can do this online, over the phone or in-person.

3. Choose your investments: Once you’ve opened the Roth IRA account, you’ll need to decide how to invest the funds. Most brokerage firms offer a variety of investment options, including stocks, bonds, ETFs, and mutual funds.

4. Transfer the 529 funds: To transfer the 529 funds, you’ll need to contact your 529 plan provider and request a direct transfer to your Roth IRA account. It’s important to do a direct transfer rather than a distribution to avoid incurring taxes and penalties.

5. Pay taxes: You’ll need to pay taxes on the amount you’re transferring from the 529 account to the Roth IRA. The amount you’ll owe depends on your current tax bracket and the amount you’re transferring.

6. Invest and monitor: After the transfer is complete, you’ll need to invest the funds in your Roth IRA and monitor their performance over time.

In conclusion, rolling over a 529 plan to a Roth IRA is a smart move for parents who want to diversify their retirement portfolio or repurpose the funds for something else. However, it’s important to carefully consider the tax implications and to consult with a financial advisor to ensure that it’s the right move for your family’s financial goals.