There have been many recent changes to retirement account rules.
Starting this year, you are 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:
o They are held in the same name (owner of the Roth is the beneficiary of the
529) and
o The 529 has been open for at least fifteen years. - 529 funds can be rolled to a Roth if:
o Contributions and earnings made within the last 5 years cannot be transferred
o Transfers count toward annual Roth contribution limit
o Beneficiary must have earned income equal to the amount transferred each
year (ROTH maximum income limits do not apply)
o The amount is below the lifetime limit for rollovers
For those concerned with overfunding 529s or leaving a legacy, call us! We are here to help determine the best strategy for your circumstances and needs.
As a result of the SECURE ACT 2.0, unused funds in a 529 account can be rolled over to a ROTH IRA for the beneficiary. The 529 account must have been open for a minimum of 15 years and Contributions made to the 529 plan in the last five years, including the associated earnings, are ineligible for a tax-free transfer. Rollovers to a ROTH IRA are subject to the standard annual ROTH IRA contribution limits.
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