The new rollover option with 529s is very compelling, but there remain many questions about how it can be used. A few such questions are raised in the balance of this note.
First, it was deemed okay to make a rollover in respect of the 2023 tax year so long as it was done after 1/1/24. Is this an accurate reading of what’s permissible?
Second, any such rollover is limited to an amount not greater than annual contribution limits. And as part of this, any rollovers are limited total earned income if less than the annual contribution limits. However, as a rollover, it seems that it should not limit a further deposit to the Roth IRA in similar amounts.
Consider that a rollover is not a contribution, notwithstanding some of the quirks imposed on this type of rollover. As such, it seems to me that limiting contributions by virtue of having made a rollover is inconsistent with how this issue is treated in other circumstances where both are possible in the same year.
Is there anything specific in legislative history, IRS statements or elsewhere that mandates different treatment in this situation?
When first thinking about this issue, I had some other questions as well, but can't recall them at this point. Feel free to be expansive, going beyond the particulars of this post when addressing the topic.
