Starting in 2024, you can roll unused 529 assets, up to a lifetime limit of $35,000, into the beneficiary’s Roth IRA, without incurring the usual 10% penalty for nonqualified withdrawals or generating any taxable income. But that’s probably not a reason to overfund a 529….

The SECURE 2.0 Act included provisions that would make it difficult for a savvy investor to get more money into a Roth IRA via a 529 account. Here are some of those provisions:

  1. lifetime limit of $35,000 can be rolled over
  2. you need to have owned the 529 for at least 15 years before you can execute a rollover
  3. rollover cannot exceed the annual Roth contribution limit, which in 2024 is $7,000. So if you wanted to rollover the entire $35,000 lifetime limit, you would have to do so over 5 years under the current contribution limits.
  4. the beneficiary of the 529 must also be the owner of the Roth IRA
  5. beneficiary must have earned income at least equal to the amount of the rollover

These are just the rules included in the legislation. It’s possible the IRS could interpret the law different. Stay tuned for further clarifications on this new provision.

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