529 Change of Beneficiary to Roll to new beneficiary Roth? Then take tax free income?

Submitted by Terrence Herr on Mon, 2024-01-08 00:28

I have a clients in their 60s with a 529 plan. Their child/beneficiary has graduate over 5 years ago. The plan has been in place for over 15 years. The wife owns it, can she change the beneficiary to her husband to allow him to rollover into his existing ROTH IRA? She does not have a ROTH and prefers to not open one. His Roth has been in place for over 5 years. After the rollover, can they immediately spend the money tax free from the husband’s Roth?



Submitted by William Tuttle on Mon, 2024-01-08 04:37

  • There were so many retirement plan provisions in the SECURE Act 2.0 that the IRS has not issued guidance for most of them.
  • The question if whether a change of beneficiary or rollover resets the 15 year clock is one of the many unknowns.
  • 529 plans are unlikely to allow any rollovers to Roth IRAs until the IRS issues guidance.

Submitted by Terrence Herr on Mon, 2024-01-08 14:09

Illinois does allow ROTH rollovers however

  • “Under current Illinois law, a Roth IRA Rollover would be an Illinois Nonqualified Withdrawal, subject to recapture of Illinois state tax benefits.”

Submitted by Alan - IRA critic on Mon, 2024-01-08 15:14

Even if the IRS guidance to come allows the change of beneficiary to be ignored, husband would have to have earned income in the respective rollover years, the rollover would be limited to that’s year’s contribution limit and it would take several years to rollover the max amount of 35,000. That might take  husband into his 70s and he might not be generating earned income in all of these years. 

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