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529 Plan Rollover to a Roth IRA

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Starting in 2024 you will have the ability to rollover any unused funds in a 529 plan to a Roth IRA for that beneficiary. This is a great benefit for those individuals that do not use 529 money for a multitude of reasons. I have talked to many clients about 529 accounts and there is a fear of potentially overfunding 529 plans and leaving them with too much money and paying a fee or taxes to remove those funds. Some have the fear that their child might not go to college and the money not be used. This addition of being able to fund a Roth IRA for the beneficiary is a great way to alleviate the fear of this money not being used. This is an additional change to 529 plans with the first major change coming in 2017 when Congress decided that 529 plans can be used for grades K-12.

What are some of the rules for the 529 plan to Roth IRA Rollover?
1. The Roth IRA must be in the name of the 529 plan beneficiary
2. The money must be moved directly into the Roth IRA
3. The beneficiary must have earned income
4. The 529 plan must have been maintained for 15 years or longer
5. Any contributions to the 529 plan within the last 5 years(and the earnings on those contributions) are ineligible to be moved to a Roth IRA
6. The maximum lifetime amount that may be transferred to the beneficiary is $35,000

For those of you that may have been on the fence about contributing to a 529 this is another good reason to consider contributing to one of these plans. If you do not use these funds towards education you are setting the beneficiary up well for retirement and giving them a head start.

 

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