529 Roth Conversion and Simple Plan Contributions
I have a client who is going to do a $7000 Roth conversion from their 529 plan in 2025. This same client is going to have earnings (W-2) from their parent’s business in the amount of $7000. The business has a SIMPLE plan. Can the client contribute the net after social security taxes to the SIMPLE plan as well.
Permalink Submitted by Alan - IRA critic on Wed, 2025-09-24 14:07
No, because SIMPLE IRA contributions reduce Box 1 of the W-2, and the 529 plan beneficiary must have at least 7000 in Box 1 to support a 7000 transfer from the 529.
If less than the 529 transferred amount appears in Box 1, then there will be an excess Roth IRA contribution to be removed in the amount of the earnings shortfall.
Permalink Submitted by Elizabeth Esarey on Wed, 2025-09-24 14:56
Thank you for this explanation, however the client has more income than just that $7000 from the parent as they have another job earning around 20K. So can you do a Roth conversion from a 529 and also a Simple deferral.
Permalink Submitted by Alan - IRA critic on Wed, 2025-09-24 15:14
Yes.
While the 529 transfer may look like a conversion, it uses up the Roth IRA regular contribution space and the Roth custodian will show it as a regular contribution on Form 5498. In addition, for future Roth IRA basis tracking purposes, the 529 transfer increases the regular Roth IRA contribution basis by the amount of basis included in the 529, with 529 earnings being treated as Roth IRA earnings.
For example, if the 529 was 60% contributions and 40% gains, a 7000 transfer would add 4200 to the Roth regular contribution basis and 2800 to the Roth IRA earnings.
There may also be an unresolved question about the legality of the 529 transfer if the client has not been the beneficiary for the last 15 years due to a change of 529 beneficiary.