Families can now roll over unused funds from their child’s
529 plan into a Roth IRA in their child’s name.
How to roll a 529 plan into a Roth IRA:
Below are the current rules of the rollover based on the provision in the
Secure 2.0 Act. Keep in mind much remains undetermined and the IRS is likely to issue further guidance.
Own the account for 15 years
- The account itself must be 15 years old before it is eligible to be rolled over.
- Contributions must be at least 5 years old to be rolled over.
$35,000 lifetime | $6,500 annual limit
Rollovers can’t exceed the annual Roth contribution limit. Based on the current $6,500 annual limit, it would take six years to roll over the $35,000 lifetime limit.
*Roth contribution limit could rise in the future, allowing larger annual rollovers.
Beneficiaries must match
The beneficiary of the 529 plan must also be the owner of the Roth IRA and must have earned income at least equal to the amount of the rollover.
- What if the plan is 15 years old, but the beneficiary has been changed? One of the perks to 529 plans is that the beneficiary can easily be changed. However, the Secure Act does not specify if a change in beneficiary triggers a new 15 year eligibility period.
Rolling a 529 plan into a Roth IRA:
Open a Roth IRA for your child
While the IRS is likely going to issue further guidance on this new law, that’s no reason to wait to open a Roth IRA for your child. It is advantageous to start a child's Roth IRA and contribute to it if they have earnings (like a high school job). This will get them started on their retirement savings at a time when their personal income tax rate is likely to be low.
This post is for educational purposes only, and does not constitute financial advice.