529 to Roth
Hi there,
Have a client that has an old 529 Plan with $36k at Merrill Lynch (not with me). He wants to move the funds out of the 529 as not being used for college and does not want it to set in there for next generation down the line. Wants funds to get to his son they were inteded for.
Rather than pulling out the funds and paying the 10% and income tax, I want to explore moving to Roth for son starting in 2024.
There have not been any new contributions in 5 years and the account is 15 years old +.
It appears we can start making rollovers to Roth starting 1/1/24 and doing it for a few years before getting out the $35k limit and then just closing out what is left in the 529.
Question is: the rules say funds need to be seasoned 5 years and account has to be opened 15 years. If I move the 529 plan from Merrill Lynch where I have no control/view/able to assist him, to a new 529 plan where I can assist with the annual transaction etc. does that effect everything? Is the 5 and 15 yera rules for the 529 WRAPPER or for the ACCOUNT and ACCOUNT HISTORY?
Also, can I move the funds from Dad Bene Son to Son Bene Son ownership?
Does anyone have real answers on this? I have read a bunch and nothing is entirely clear.
Permalink Submitted by Alan - IRA critic on Mon, 2023-08-14 21:29
No clear answers, as this provision will perhaps need the most extensive IRS guidance yet on several issues involving changes of beneficiaries, account transfers, and reporting requirements between 529 custodians and Roth IRA custodians including 5498 contribution reporting by Roth custodians. It does not look like the IRS will be able to release this guidance in time for custodians to re program their systems to be ready for 2024. The Congressional legislation (Sec 126 of Secure 2.0) leaves to the IRS responsibility for defining the details of these transfers.
Permalink Submitted by Donna Messinger on Fri, 2023-08-18 16:13
I read the bill because I was interested in changing the beneficiary on my granddaughters 529 to myself as the account owner and then doing a rollover to my own personal Roth IRA. I didn’t see anything in the bill that says for sure that the 15 year window starts all over again if you change beneficiaries. Do you have any new information on this or do we just have to wait for clarification. Thank you Ed for any comment you have.
Permalink Submitted by Alan - IRA critic on Fri, 2023-08-18 17:49
We will have to wait for IRS guidance on this section of Secure 2.0. There are other issues here in addition to your question.