529 to Roth Question
When completing a 529 to Roth rollover, if the state (in this case, Illinois) doesn’t recognize a 529 to Roth transfer as qualified, and there is a clawback for the original state tax deduction, would the clawback be based on FIFO? 15+ years ago, Illinois had a flat tax rate of 3%, then it was eventually raised to 3.75%, now it’s 4.95%. So, would it be based on the original deduction, in this case 3%? I would assume any earnings would be taxed at 4.95% (2024’s Illinois tax rate).
Permalink Submitted by Alan - IRA critic on Wed, 2024-04-03 22:17
Can’t help here. Each of the states that provided deduction may or may not have clawback rules and if they do, they will not be consistent with each other. Therefore, the specific clawback provisions and calculations published by IL will have to be accessed, and they will not necessarily be equitable. Perhaps they will provide a worksheet at some point.