Tax-free rollover from 529 plans to Roth IRAs will be allowed starting in 2024

In December 2022, Congress passed the Consolidated Appropriations Act of 2023, an omnibus spending bill that includes the much-anticipated and long-awaited retirement bill known as SECURE Act 2.0.

One of the provisions of SECURE Act 2.0 that has grabbed a disproportionate percentage of headlines is the introduction of the ability, beginning in 2024, for some individuals to move 529 plan money directly into a Roth IRA. This new transfer pathway comes with a number of conditions that must be satisfied for the transfer to be valid and that limit the ability to take advantage of (or abuse) the provision.

The conditions include:

  • The Roth IRA receiving the funds must be in the name of the beneficiary of the 529 plan;
  • The 529 plan must have been maintained for 15 years or longer;
  • Any contributions to the 529 plan within the last 5 years (and the earnings on those contributions) are ineligible to be moved to a Roth IRA;
  • The annual limit for how much can be moved from a 529 plan to a Roth IRA is the IRA contribution limit for the year, less any ‘regular’ traditional IRA or Roth IRA contributions that are made for the year (in other words, no doubling up with funds from outside the 529 plan); and
  • The maximum amount that can be moved from a 529 plan to a Roth IRA during an individual’s lifetime is $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.