529 to Roth conversion

[karlameyer]

Hello.  I have been taking money out of my child's 529 plan to pay for her college expenses.  All of the withdraws are for qualified expenses.  My understanding is that I do not need to report any of that on my taxes, just keep records.

Now I want to convert part of the 529 plan to a Roth, following the rules of the Secure 2.0 Act.  Does the same logic apply to this situation?  As long as I am following the rules of the Secure 2.0 Act, then I don't need to include this transaction anywhere in my taxes, just keep records.  Is that correct?  Thanks.

[DaveF1006]

Yes, but there are certain restrictions that apply. Here's what you need to know about the new 529-to-Roth rollover provision:

• 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.

The New 529 Rollover Rules

[maglib]

@karlameyer  the new rules on converting from a 529 to a Roth do not take place till 1/1/2024. It is in the link provided by the TT Expert.

Do also note there is no reason to take the money out of the 529 where it would stay growing tax free and then can be used for any relatives secondary education expenses and as an inheritance vehicle would be a better bet as no 10 year rule on 529 plans but, monies can transfer at any time to a very loose interpretation of a relative.