529 plan to roth rollover
I have a client who has held their 529 plan for over 15 years. They want to roll into a Roth IRA, how are the funds look at regarding contributions and earnings from 529 plan. If the client wanted to take funds before 59.5 from the Roth, would the rollover be considered an early distribution subject to tax and penalty prior to 59.5. thanks…
Permalink Submitted by Alan - IRA critic on Mon, 2025-01-27 12:34
The client must also be the beneficiary of the 529 and meet all the requirements to do this transfer. Upon transfer, the portion of the 529 that represents contributions will be treated as regular Roth IRA contribution basis and the portion that represents 529 gains will be treated as Roth IRA gains. Therefore, a NQ Roth IRA distribution of these amounts will be commingled with all owned Roth IRA amounts, and come out under the Roth ordering rules, with contribution basis out first tax and penalty free. If Roth earnings are included in the NQ distribution (they come out last), these earnings are subject to tax and penalty.