Roll 529 to Roth

[sengsational]

Apparently there's a new law going into effect that allows leftover 529 funds to go into a Roth. I've only read the article below. There's a 35K lifetime max, and the rollover is not in addition to the annual maximum. The account must be 15 years old.

As it turns out, I just got done re-titling a 529 where I was the owner and DD the beneficiary, to now she is both owner and beneficiary. I don't know if it's 15 years from the initial deposit, or if the clock started over again.

Either way, she was probably going to fund her Roth anyway, so didn't need the new rollover rule.

https://www.cnbc.com/2022/12/23/tax...lans-to-roth-iras-may-be-allowed-in-2024.html

 

[SecondCor521]

It's Section 126 of the SECURE 2.0 Act, which is Division T in the 2023 omnibus spending bill. Not technically law yet, as it hasn't been signed by the President, but it probably will get signed by Friday so the government doesn't shut down.

It creates a new kind of rollover. The rollover must be direct (i.e., trustee-to-trustee).
And there is essentially a five year holding period - rollovers are limited to the amounts contributed (plus applicable earnings) before five years before each rollover.

For the circumstances you describe, I don't think the clock started over. It is the account itself that has to be 15 years old, and it sounds like it's the same account. Other situations might be more dicey. What if someone opens an account for their eldest kid more than 15 years ago, but rolled down the beneficiary to younger siblings? What if grandpa merges his older 529 plan into the one established more recently by the parents?

If she was going to fund her Roth anyway, and doesn't have plans for grad school or would rather not pre-fund future grandchildrens' college, then she could use the new 529->Roth provision to max out her Roth contribution and then use the money she would have contributed to her Roth for whatever her next goal is (house down payment, maybe).

She'll have to wait until 1/1/2024 when that section of the law takes effect.

 

[Dtail]

My DGF's son has leftover monies in his 529 account and I have convinced him to start his retirement funding with this provision.

 

[sengsational]

For the circumstances you describe, I don't think the clock started over. It is the account itself that has to be 15 years old, and it sounds like it's the same account. Other situations might be more dicey.

I had to roll the 529 from Fidelity to Schwab because Fidelity would not re-title the account to the beneficiary before I croaked. So, I opened an empty account at Schwab and instructed Fidelity to move the funds. That worked. Then, DD had to open an empty account to accept the funds with her as owner. So the account is very new, the last contribution was 30 years ago.

 

[SecondCor521]

I had to roll the 529 from Fidelity to Schwab because Fidelity would not re-title the account to the beneficiary before I croaked. So, I opened an empty account at Schwab and instructed Fidelity to move the funds. That worked. Then, DD had to open an empty account to accept the funds with her as owner. So the account is very new, the last contribution was 30 years ago.

Hmm. That sounds dicey to me, but if I were in your shoes I'd probably read the language of the statute very carefully and form an opinion. Is the IRS going to interpret "account" strictly as a specific account, or a logical account?

Since it's new law there is unfortunately no guidance yet. But since it doesn't take effect for a year anyway, maybe guidance will come out before it matters.