SECURE Act 2.0: 529 Plan Rollovers to Roth IRAs

In today’s vlog, I will be discussing the SECURE Act 2.0: 529 Plan rollovers to Roth IRAs. Before I elaborate about it, we shared our vlog about the changes regarding Required Minimum Distribution (RMD) last month. You can check it out for more information on RMD. This is our second vlog about the changes within the SECURE Act 2.0 which became a law in December 2022. For this vlog, I will focus on the 529 Plan rollover to a Roth IRA.
This change will start next year, 2024. Beneficiaries of 529 plans may roll over up to $35,000 to a Roth IRA during their lifetime. The Roth IRA receiving the funds must be in the name of beneficiary of the 529 plan for this to work. The rollovers from 529 plans to Roth IRAs will be subject to annual contributions limits. For example, it would be up to $6,500 for this year, 2023, but the change is effective in 2024. I just wanted to give you an example if it could happen this year. The income limitations on Roth IRA contributions will not apply to this change. However, the beneficiary must have compensation during the year at least equal to the amount being rolled over. Before you consider this strategy, there are two more rules to be aware of. One rule is the 529 plan must have been open for more than 15 years before the beneficiary can roll over to a Roth IRA. Another rule is 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.
Also, it is important to acknowledge that the SECURE Act 2.0 does not address the issue of successor 529 beneficiaries or a change in the beneficiary at this time. What does that mean? For example, if a beneficiary has been rolling over $15,000 from their 529 plan, the account owner decides to change the beneficiary to a different person. Would the different person be able to contribute up to $35,000 to a Roth IRA? Or is the lifetime amount rule applying to the 529 plan account itself, not beneficiaries? Will a new 15-year waiting period starts when the beneficiary is changed? Hopefully, IRS will provide a guidance with the answers in future.
Ultimately, this strategy can benefit those who have a 529 plan that will not be used for education expenses and to avoid tax penalty by doing a tax-free rollover to Roth IRA. If this change could impact your situation, you can contact our advisors on how to plan to utilize this strategy if there are unused funds within your 529 plan.

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Adrianna Rocha

Client Relations Specialist

240-379-6929 V
240-439-6889 VP
512-379-6909 FAX
adrianna@kramerwealth.com

Adrianna Rocha joined Kramer Wealth Managers in 2021.

Adrianna is responsible for client experiences and service. As part of the customer service team, she strives to help and provide top-notch service to our clients. As part of her role, she communicates with clients through videophone, schedules client meetings, prepares and processes forms, and gathers information for our advisors.

Adrianna Rocha graduated with a Bachelor of Arts in Communication Studies from Gallaudet University in 2017. Before she joined our team, she worked in the customer service industry for nearly a decade. She excels in human-to-human relations and takes pride in not only her own accomplishments, but her clients’ as well. Adrianna enjoys chatting about her slight obsession with dogs, houseplants, essential oils, and food: especially Mexican food! She is also a proud fur-mama to her beautiful Aussie-mixed pup, Ziva.

Adrianna is not registered with Osaic Wealth.