529 plan and recapture of ROTH transfer in NY
I have a 529 plan. I understand that one can transfer up to $35,000 from 529 to Roth Ira. However in NY this transfer is recaptured. The beneficary and account owner no longer reside in NY and thus do not do NY state income tax. How does this recapture will be performed in my case and how I should go about? thank you
Permalink Submitted by Alan - IRA critic on Fri, 2024-08-30 11:54
Apparently, NYS recapture is currently done by adding the prior deducted amounts to current year income, but if you are no longer in NYS that will be your only NYS income for the year, so perhaps it will fall under the NYS filing requirements. If it doesn’t, you would have to file a non resident return for each year you take a NQ NY 529 distribution, and because it would take at least 5 years to roll the 35k max to the beneficiary’s Roth IRA, that would be several such returns.
Note that the IRS has not clarified several issues regarding these rollovers, one of which is what happens if you change the plan to another state’s plan or change the beneficiary. Wait until this is clarified before considering the NYS issue. For example, if NYS is bothering to pursue out of state residents for recapture and you would have to file a non resident NYS return for up to 5 years, if the IRS allows a plan transfer to be ignored with respect to the 15 year holding period or 5 year balance period, you might just transfer the 529 plan, wait until you hear from NYS and then file just one NYS to recapture those deductions in a single year.
Otherwise, since this Roth rollover must occur over several years, you may find out how NYS reacts to the first such rollover and then you will know what to expect for later rollovers.