SECURE Act 2.0 …..529 to roth

Submitted by Robert Ervolina on Wed, 2023-02-22 15:51

Hi:

One of the restrictions for moving 529 plan money to a Roth IRA is that the person is subject to the IRA contribution limit. Who specifically is subject to the contribution limit…..the 529 plan owner or the 529 plan beneficiary? Meaning, if the client (father) wishes to move funds from 529 plan to son’s Roth, is Dad subject to limit or son?

Another restriction is the Roth IRA owner and 529 plan beneficiary must be the same person. Is there any issue with the Roth owner adding himself as beneficiary and then being allowed to move those funds into his own Roth? I have a client who we have been using the backdoor Roth strategy and I was thinking maybe we could get the 529 plan funds into the acct as well since income limits don’t apply to this strategy. Better yet, put his wife on as owner and beneficiary because we can’t backdoor a roth for her due to her having a large TIRA. Please lmk your thoughts.

Thank you.



Submitted by BruceM on Wed, 2023-02-22 16:10

From Mike Kitces web site on the SECURE 2.0 Act…

  • The Roth IRA receiving the funds must be in the name of the beneficiary of the 529 plan;
  • The 529 plan must have been maintained for 15 years or longer;
  • Any contributions to the 529 plan within the last 5 years (and the earnings on those contributions) are ineligible to be moved to a Roth IRA;
  • The annual limit for how much can be moved from a 529 plan to a Roth IRA is the IRA contribution limit for the year, less any ‘regular’ traditional IRA or Roth IRA contributions that are made for the year (in other words, no doubling up with funds from outside the 529 plan); and
  • The maximum amount that can be moved from a 529 plan to a Roth IRA during an individual’s lifetime is $35,000.

 

Submitted by Robert Ervolina on Thu, 2023-02-23 18:05

Thank you. However, my questions were pertaining to the aforementioned restrictions. Regarding the fourth bullet point on annual limits, who does the limit apply to? For instance, if I am the owner and my son is beneficiary, and I want to transfer $6,500 to his Roth from the 529 plan of which I am the owner, does the annual limit apply to me or him? Both?The second question pertains to the first bullet point. Can the account owner remove the beneficiary and name himself as beneficiary? Thereafter, move the 529 plan funds into his own Roth assuming all of the above is satisfied? I don’t see why he couldn’t, but thought it makes sense to double check. thank you.

Submitted by Alan - IRA critic on Thu, 2023-02-23 19:31

The limits apply to him (the beneficiary). If the beneficiary is changed the limits will apply to the new beneficiary but the IRS will have to clarify how beneficiary changes affect the holding periods with respect to the 529 for transferring funds to the new beneficiary’s Roth IRA.

Submitted by Alan - IRA critic on Wed, 2023-02-22 16:35

The 529 beneficiary. That said, the IRS will have to clarify how changes of 529 beneficiaries affect the holding period of the 529 and other provisions. 

Submitted by Stephen Jaffe on Mon, 2023-02-27 02:19

Hello — My son is finishing graduate school and we depleted his 529 plan but left it open.  We also have a Coverdell ESA account that will have a residual balance.  Can this balance be rolled into the 529 and used later used for the 529 to Roth rollover?  Thank you 

Submitted by Alan - IRA critic on Mon, 2023-02-27 02:45

No. Rollovers between ESAs and 529 plans are not permitted.

Submitted by John Boyle on Mon, 2023-02-27 18:05

Can’t a Coverdell balance be moved to a 529 as a trustee-to-trustee transfer? See attached article.https://www.savingforcollege.com/article/can-you-rollover-funds-from-a-529-plan-to-a-coverdell-esa

Submitted by Alan - IRA critic on Mon, 2023-02-27 19:55

Seems like a reliable source, but I am not seeing this in Pub 970 or in the tax code.

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