@shire Still a grey area but, so far it is not a new contribution.
Funds cannot be moved from a 529 plan into a Roth IRA without incurring penalties and taxes unless the account has existed for at least 15 years.
Accountholders and beneficiaries cannot roll over any contributions or earnings on contributions made in the last five years. In other words, the money transferred must have been in the account for at least five years, and the amount can’t exceed your balance from five years prior. So do not look at earnings, it is the balance from 5 years ago capped.
tax and penalty-free rollovers to Roth IRA retirement plan accounts.
Note that the beneficiary must have earned income equal to at least as much as the amount transferred in any year.
You can only transfer up to the annual limit each year. You could transfer $7,000 for the 2024 tax year (you have until Tax Day 2025 to make a 2024 contribution).
it’s not yet clear if all states will treat these rollovers as a qualified expense for state income tax purposes. Not all states follow the federal definition of qualified expenses for 529 plans, and in states that don’t, there could be state tax penalties caused by a 529 to Roth IRA rollover. Some states will need to to update their laws to include these rollovers as a qualified expense, others may choose not to do so.
Do note there is no reason to rush this as leaving the funds in a 529 allows you so much flexibility and you can change beneficiary to any relative at any point in time. It still grows tax free. You can fund a grandchild with the funds in the future. Plus from an estate status, there is no 10 year rule to withdraw all the funds. It can effectively continue to grow.
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