Explore the rules and considerations surrounding converting unused 529 plan funds to a Roth IRA. This article clarifies the limitations and benefits of this strategy, emphasizing its intended purpose for education savings.
A specialist studies monitors on the New York Stock Exchange trading floor in New York on November 21, 2024. (AP Photo/Ted Shaffrey, File)are powerful tools to help pay for the mounting costs of an education. Why are some people hesitant to use them?Many parents open 529s for their children when they are born; they have no way of knowing whether their kids will earn a scholarship or even go to college at all. Fortunately, parents of multiple children can change the beneficiary of a 529 plan ..
But don’t think the 529 rollover is a loophole to save extra for retirement; there are rules that limit the conversions.The Roth IRA receiving the funds must be in the name of the 529 plan beneficiary.You cannot convert 529 contributions made within the past five years (or the earnings on those contributions).You can move a maximum of $35,000 from a 529 plan to a Roth IRA during your lifetime. 529 funds must be converted by paying the amount directly to a Roth IRA—you can’t pay yourself and then deposit the money into the Roth IRA later. You can contribute to a Roth IRA only if you have earnings from a job, so the 529 beneficiary must have eligible earnings when the 529-to-IRA conversions occur.income limits is a retirement-saving perk for those with higher income, the rest of the rules around rolling over your excess 529 funds are designed to ensure that people are using 529 plans for their intended purpose: education. The annual contribution limits as well as the lifetime cap on conversions mean that you can’tdouble up on your retirement funding.The ability to convert unused 529 funds to a Roth IRA can help alleviate potential concerns about oversaving for education. Still, don’t count on your 529 as a means to save for retirement. Instead, consider funding your Roth IRA separately.529 college savings plans are powerful tools to help pay for the mounting costs of an education. Why are some people hesitant to use them? One common concern is oversavin
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