Trust & Estate Quick Tip #19 – Roll over unused 529 funds to IRA accounts

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A 529 plan serves as a dedicated educational savings account, enabling parents, relatives, friends, or any interested individual to accumulate funds intended for a child's upcoming educational needs.

Previously, if the funds were withdrawn from the plan for purposes other than education, both regular income tax and an additional 10% penalty were applicable.

Beginning in 2024, the federal legislation known as the SECURE Act 2.0 gives a 529 plan beneficiary the ability to transfer 529 plan funds into their own Roth IRA without paying taxes or penalties.

Here are the conditions and qualifications for this transfer:

1. The 529 plan should have been operational for a minimum of 15 years.
2. The owner of the Roth IRA must coincide with the beneficiary of the 529 plan.
3. The transfer is contingent upon the requirement that the Roth IRA owner possesses taxable compensation equal to or surpassing the transfer's amount.
4. Contributions made to the 529 plan within the last five years, along with the associated earnings, are ineligible for a tax-free transfer.
5. Any transfers conducted from a 529 to a Roth IRA are counted against the annual contribution limits of the Roth IRA, which presently stand at $6,500.
6. The overall lifetime ceiling for such transfers is set at $35,000.

For any further questions or comments on this topic, please leave a comment below or email us at Info@EstateandProbateLawyer.com.

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