529 To Roth IRA Rollover
Good to Know
Your prospect started saving for their child’s college education early and consistently. Fast forward to when the child graduates from college. Now it’s obvious there’s $35,000 in the 529 plan that will not be needed for college. When they turn to you for advice, how do you advise them?
Here’s an interesting opportunity for parents to jump start a college-age child’s retirement plan using an overfunded Section 529 Qualified Tuition Program (College Savings Plan).1 In this context, “overfunded” means that after paying all of the beneficiary’s qualified higher education expenses, there are 529 Plan funds left over. The left over funds can be rolled over, income tax and penalty free, to a Roth IRA.2
Requirements and limits include:
- The Roth IRA must be in the name of the beneficiary of the 529 plan,
- The 529 plan must have been maintained for at least 15 years,
- Rollovers in any one year cannot exceed the annually indexed contribution limit for IRAs—$7,000 in 2024—and,
The lifetime maximum 529 rollover to the Roth IRA is $35,000.
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1 Retrieved from https://www.savingforcollege.com/article/roll-over-529-plan-funds-to-a-roth-ira
2 Effective for years beginning on or after January 1, 2024 under the Secure 2.0 Act.
