529 to Roth IRA – Secure Act 2.0

Submitted by Ray Kaufman on Mon, 2023-03-06 16:14

I have leftover 529 money in 3 accounts for our 3 children who are the beneficiaries. I’d like to do some Roth IRA conversions starting in 2024. The IRAs were started in 2008 so the 15 year rule should be satisfied by 2024.

Here are my questions.
1) In January 2024, can I do a $6500 conversion for a 2024 tax year plus a $6500 contribution for the 2023 tax year?

2) I’d like to transfer 529 money between our 3 children to even out their 529 balances. We have not made new contributions in the past 5 years. Would the transferred money between accounts be available in 2024 for a Roth conversion? Hopefully the 5 year contribution ineligibility does not apply to transferred money.

Thanks,
Ray



Submitted by Alan - IRA critic on Mon, 2023-03-06 18:25

  • The IRS will have to issue clear regulations for the “529 to Roth IRA transfers” since the Act itself leaves many questions, such as changing beneficiaries. These are NOT conversions, which instead come from an IRA account.
  • The beneficiary receiving the transfer must have earned income at least equal to the amount transferred to their Roth IRA. 2023 Roth contributions are not affected by the new 529 transfer rules. The 15 year establishment limit applies to the 529 plan, not to the Roth IRA receiving the transfer. If the Roth owner has at least 6500 of earned income in both years a Roth contribution can be made, or for 2024 the contribution source could be a 529 plan with the Roth owner as beneficiary of the 529.
  • Q 2 relates to the change of beneficiary regs that the IRS will have to issue, both with respect to the 15 year   529 requirement and to the exception for 529 contributions made in the last 5 years. I wouldn’t expect these Regs to be issued much before late 2023.


Submitted by Ray Kaufman on Tue, 2023-03-07 14:01

Thank you. 



Add new comment

Log in or register to post comments