529 Ownership Change at Roth Conversion
Client’s grandmother opened a 529 in 2014 then transferred ownership to the client in 2024. Did the 15 year clock start in 2014 or 2024?
Either way they have not met the 15-year criteria, but in other situations, they might. If a change in beneficiary does not reset the 15 year period and your client is the account owner of a very overfunded 529 account (the account was first set up in 1994, with the last contribution around 2000), can you change the beneficiaries to various allowed family members (parents, aunts, uncles, first cousins, etc.), move in $7-$8k+ to each of the new beneficiaries, and then have multiple beneficiaries convert the 529 account to their Roth accounts. I realize that the other rules must be met — i.e. the rollover amount must have been in the account for five years, there must be sufficient earned income, etc. Let’s say these have been met. Situation A assumes the account owner has not changed since 1994 (so well over 15 years.) Situation B assumes the original account owner passed away in 2014, leaving the account ownership to his daughter, who would have been the account owner for 10 years. We are now approaching year-end 2024 and they would like to convert as much as possible from the 529 account to a Roth. I have a hard time not saying this account has not been open for at least 15 years, especially since it has not been funded for over 15 years. Thoughts? And would the answer be different for the original beneficiaries (from 1994) vs. “newer” beneficiaries added in 2024?
Permalink Submitted by Alan - IRA critic on Tue, 2024-11-19 12:57
It is expected that a change of ownership (but not necessarily a change of beneficiary) will not reset the 15 year period or the 5 year period, but final IRS guidance on this is still outstanding.