Ask an Advisor with Caleb Boy: Do you have excess funds in your 529?

Graduation season is upon us! It is a special time of year. The weather is getting warmer, the sun is staying out longer, and new chapters are beginning. It’s a time where students are completing schooling and families are celebrating their students’ accomplishments. As we reflect on our completed diplomas, degrees, and more, it’s also a time to reflect on our educational finances.

Have you heard of a 529? Most of you have. It is a great way to invest and pay for educational costs in a tax-advantaged way. Many of our clients invest in these accounts for many years and end up with a substantial amount of money for their children going into private K-12 school or college. But what happens if you child receives a full scholarship? What if they only need to use some of the funds?

There have been many recent changes to retirement account rules and you are now able to roll a 529 into a Roth IRA! Some are calling this new phenomenon the “Baby Roth,” which could theoretically give assets the longest possible time for tax-free compounding.

Here’s the scoop on the new 529-to-Roth rules:
529 funds can be rolled to a Roth if:
– They are held in the same name (owner of the Roth is the beneficiary of the 529) and
– The 529 has been open for at least fifteen years.

529 funds can be rolled to a Roth if:
– Contributions and earnings made within the last 5 years cannot be transferred
– Transfers count toward annual Roth contribution limit
– Beneficiary must have earned income equal to the amount transferred each year (ROTH maximum income limits do not apply)
– The amount is below the lifetime limit for rollovers
 
Wherever you may be in your financial journey, we are here to help you and your family. If you are curious on how these topics apply to your financial house, give me a call today at (615) 457-3481 or email me at caleb@wealthstrategiespartners.com so I can help!