In December 2022, Congress passed an extensive spending bill that includes the highly anticipated retirement legislation known as SECURE Act 2.0.
Among the provisions of SECURE Act 2.0 is the introduction, starting in 2024, of a new option allowing certain individuals to transfer funds from a 529 plan directly into a Roth IRA. This transfer pathway is subject to specific conditions aimed at ensuring compliance and preventing misuse:
- The Roth IRA receiving the funds must be in the name of the beneficiary of the 529 plan.
- The 529 plan must have been established and maintained for at least 15 years.
- Contributions made to the 529 plan within the last 5 years (including the earnings on those contributions) are not eligible for transfer to a Roth IRA.
- The amount that can be transferred annually from a 529 plan to a Roth IRA is capped at the IRA contribution limit for the year, minus any regular contributions made to traditional or Roth IRAs for that year (thus preventing double-dipping from sources outside the 529 plan).
- Over the course of an individual's lifetime, the maximum amount that can be transferred from a 529 plan to a Roth IRA is limited to $35,000.
Taking advantage of this new 529 transfer option will require close attention to the program requirements; please contact your ShindelRock tax professional for more details.
