transcript

Excess 529 money can now be rolled into a Roth IRA. There are a long list of requirements to be eligible for this, but I actually had my first few clients where this would make sense so I dove into the details and want to share with you what I learned.

Rolling Excess 529 Contributions into a Roth IRA

#1) You need to have owned the 529 plan for 15 years before executing the rollover.

#2) The beneficiary of the 529 plan needs to be the same beneficiary for the Roth IRA.

#3) The max amount that you can roll over every year is equal to the Roth IRA contribution (limit) for that year, minus any contributions you've already made to the Roth IRA. So in 2024, the Roth IRA contribution limit for under 50 is $7,000. If you've already contributed $1,000 to your Roth IRA, then the rollover limit is going to be $6,000.

#4) This could be further limited by the requirement that the beneficiary of the Roth IRA has to have earned income at least equal to the amount of the rollover in that year. So keep that in mind.

#5) The max amount that can be rolled over during a beneficiary's lifetime is $35,000. That is a per beneficiary limit.

#6) 529 contributions that you have made in the last 5 years are ineligible for the rollover.

There are a lot of boxes to check with this, however, if you find yourself with some extra 529 money and you don't have another beneficiary that could use that money for education, this could be a better alternative than paying taxes and a penalty.

My name is Linda Rogers, Owner of Planning Within Reach.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.