New 529 to Roth Options
Hello,
With respect to the new 529 to Roth transfer allowance put in place by SECURE 2.0. We know that the annual transfer amount cannot exceed the annual IRA contribution limits.
Do you interpret that the funds transferred from the 529 to Roth under the rules would be treated as regular contributions to the Roth where the Roth owner could withdraw those amounts at any time with no consequences regardless of age or whether the 5-year holding period has been satisfied? Basically are these 529 to Roth transfers treated as basis in the receiving Roth?
Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2024-02-07 21:29
Permalink Submitted by Kevin O'Hearn on Wed, 2024-02-07 21:59
Thanks Alan. What if there are contributions and earnings in the 529 that are less than 5 years old? Since those amounts are not eligible for rollover, would those amounts be disregarded from the determining which portion of the rollover to Roth is basis vs. earnings?
Permalink Submitted by Kevin O'Hearn on Thu, 2024-02-08 00:08
Sorry Alan but I forgot to ask one other thing. Second question…..the SECURE 2.0 makes reference to a “qualified rollover contribution.” In the event of one of these from a Roth 401k to a Roth IRA, the rollover is not treated pro rata (basis and earnings), right? The entire rollover is now treated as basis in the receiving Roth IRA. Is it possible these 529 transactions could be treated as qualified rollovers where the pro rata treatment wouldn’t apply? If the pro rata should apply here, it seems they are treating these as Non-qualified rollovers?
Permalink Submitted by William Tuttle on Thu, 2024-02-08 00:39
Permalink Submitted by Alan - IRA critic on Thu, 2024-02-08 01:07
Permalink Submitted by Kevin O'Hearn on Thu, 2024-02-08 16:58
Thanks Alan for the explanation. Would you agree that the portion of the 529 that is rolled over that represents the contributions would be treated as basis in the Roth IRA and can be withdrawn before age 59 ½ / 5-year window?
Permalink Submitted by Alan - IRA critic on Thu, 2024-02-08 17:47
Yes, regular Roth IRA contribution basis, not conversion basis.