Under SECURE 2.0, it will soon be possible to perform a rollover from a 529 educational savings plan to a beneficiary’s Roth IRA up to a certain dollar limit. Many of our clients have leftover money in their 529 plans after their children finish college and may be able to use this new rollover provision.

Here’s what you need to know about the new 529-to-Roth rollover provision:

• This provision takes effect in 2024, not 2023.
• The 529 plan must be open for at least 15 years.
• The lifetime limit for the rollover is $35,000 per beneficiary.
• The Roth IRA must be in the name of the beneficiary of the 529 plan.
• Any contributions made within the past five years (and earnings on those contributions) are ineligible to be moved into the Roth IRA.
• The annual limit on the rollover is the IRA contribution limit for the year, less any other IRA contributions.
  • For example, the current IRA contribution limit is $6,500. If the beneficiary made any IRA contributions, the rollover amount must be reduced by those contributions. Therefore, if the beneficiary contributed $2,000 to any IRA, the amount available for rollover is $4,500.
  • Consequently, getting to the $35,000 lifetime limit may take more than five years.
• The rollover must be a plan-to-plan or trustee-to-trustee rollover. This means you cannot take a check from the 529 plan to deposit into the IRA.
• The beneficiary is not subject to income limitations to contribute to a Roth IRA. For example, even if the beneficiary’s income is over $153,000 (if single), the beneficiary can make a rollover from the 529 plan to the Roth IRA.
• The beneficiary must have earned income, and the amount that can be rolled over is the lesser of earned income or the IRA contribution limit. Therefore, if the beneficiary is not working, no rollover is available because there is no earned income.