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529 to Roth IRA Roll-overs in Secure 2.0

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  • 529 to Roth IRA Roll-overs in Secure 2.0

    I think this is an important enough topic that needs its own thread.

    This caught my eye, as I have excess funds in my child's 529 account, and I like the optionality provided to roll some of the funds into their Roth IRA.

    What is clear from what I have read so far is:
    1. Account needs to be open for at least 15 years (although there is ambuiguity on whether the clock re-sets if you change the beneficiary)
    2. Can't roll-over funds contributed in the past five years (although there is ambiguity on whether you apply FIFO rule or some other test for this)
    Following questions are not clear from the articles so far:
    1. Does the beneficiary need to have earned income in the year that you make a rollover? Is the amount capped by their earned income? [I hope the answer to both questions is a no]
    2. Can the rollover occur prior to the beneficiary graduating from their college? [I hope the answer is yes]
    3. How do you deal with the five year restriction? is this simply making sure that your cumulative rollover amount is lower than the balance in the 529 account from five years ago?
    4. Finally, how do you actually go about executing this? Do you initiate from the 529 account, or initiate this rollover from the Roth IRA account?
    Presumably, the custodians and Brokerages will take some time to implement this. But it would be good to hear from anyone who has executed this to completion, and what tips/learnings they have from that experience.

  • #2
    This article from as well as other sources I've read seem unified on the point that the beneficiary needs earned income to make the transfer. Not sure about the other points except that the 5-year issue doesn't seem like a big deal since you can only move about 1/5th of your lifetime allotment of $35k each year.


    • #3
      It's all up to interpretation at this point and in IRS hands since congress as usual doesn't think about the details like these.

      Roth can go over limits and no earned status...loom at conversions. There is no limit to input into Roth with those. There is no earned income status either.

      Same rules can be applied potentially to 529 conversions.

      So Kitces does a very good job at summarize the issue. What we simply don't know is where the IRS is going to land on this, but they have a roadmap somewhat with conversions already.