529 Plans and Non-Spouse Beneficiaries: Today’s Slott Report Mailbag

Thursday, January 11, 2024

By Sarah Brenner, JD
Director of Retirement Education
Follow Us on X: @theslottreport

Question:

Starting in 2024, if you have a 529 plan you can potentially roll it into a Roth IRA if certain requirements are met. Could the 529 plan also go into a Roth employer plan?

Thank you.

Answer:

New rules allowing rollovers from 529 plans to Roth IRAs if certain conditions are met do go into effect this year. However, these new rules only allow rollovers from 529 plans to Roth IRAs. You cannot roll over a 529 plan to a Roth employer plan.

Question:

Hello,

I hope you can help with what seems to be a very complicated and confusing topic. There seems to be a lot of conflicting information about Roth IRAs inherited by nonspouse beneficiaries.

I have a Roth IRA and have named my daughter as beneficiary. I know she would need to rename the Roth IRA as inherited and then name new beneficiaries for her Roth in the event of her death. Are required minimum distributions (RMDs) required during the 10-year distribution period? Some online sites are saying RMDs are required.

Also, if my daughter passes before the end of the 10-year period and her beneficiaries inherit her inherited Roth, how does that work? Do they get another 10 years, or can they only take advantage of the remaining time from the first inheritance?

Any help you could provide would be greatly appreciated.

Regards,

Janice

Answer:

Hi Janice,

The new rules requiring a 10-year distribution period for most nonspouse beneficiaries are definitely confusing, so it is no surprise that you have some questions.

If the 10-year rule applies to a nonspouse beneficiary of a Roth IRA, there are no RMDs required during the 10-year payout period. This is because these RMDs are only required when an IRA owner dies after the date on which RMDs are required to begin during his lifetime. Roth IRA owners do not have such a date because they are never required to take RMDs during their lifetime.

If your daughter would die prior to the end of the 10-year period, her successor beneficiary would need to empty the inherited Roth IRA by the end of that same 10-year period. The successor would not get more time to empty the account.

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