By Dr. Jim Dahle, WCI FounderI have been getting some variation of the following question every week since the day the Secure Act 2.0 passed.
“Given the Secure Act 2.0 provision that allows for conversion of a 529 to a Roth IRA up to $35,000 if it's been open for 15 years, do you see any downside to opening 529s for myself and my wife, funding to the level that they'll be expected to be $35,000 or so in 15 years and then converting to Roth? It wouldn't be a large percentage of the overall portfolio but still potentially an extra $70,000 of Roth contributions. Appreciate any input on the subject.”
If you have no idea what I'm talking about, here is what I said about this particular section of the Act the week it passed in 2022.
ΔSection 126: 529 to Roth IRA Rollovers Now Allowed
Once the 529 has been established for 15 years, 529 beneficiaries can roll up to $35,000 from their 529s into their Roth IRAs. This is not an addition to their annual contribution but a replacement for it. Basically, if you oversave for college, newly graduated students can use their $6,000ish per year for something besides Roth IRA contributions and still get their Roth IRA funded. There is no income limitations either, like with direct Roth IRA contributions. This won't change what I do with leftover 529 money for most of my kids (that will go to the grandkids), but it will for leftover 529 money I have saved for nieces and nephews. Starts in 2024.
Today, let's talk about this possible 529 to Roth IRA rollover a little bit more.
Another Escape Valve for a 529
The way this is intended to be used—and, honestly, the way I think it should be used—is as an additional escape valve for an overfunded 529. People worry about putting too much into 529s. They worry that they'll oversave for college and then need the money themselves, which means they'd have to pay the 10% penalty plus ordinary income tax rates on the gains in the plan when they withdraw it for something other than an approved educational expense. This fear inappropriately keeps them from using this excellent college savings vehicle, so the government is trying to minimize that fear.
Before the Secure Act 2.0, there were already a fair number of escape valves. First, the principal always comes out tax- and penalty-free. Those penalties only ever applied to gains in the plan. Second, if your kid went to a military academy, got a scholarship, or received employer educational assistance, you could take out an amount equal to what they received without having to pay any penalty. Third, if the beneficiary dies or becomes disabled, you can also avoid the penalty on withdrawals (and, in fact, may wish to consider a rollover to an ABLE account for the now-disabled person).
None of those are really the best thing to do with an overfunded 529. I now have four 529s that are likely overfunded given my childrens' educational plans. My plan is simply to change the beneficiary to my grandkids. Voila! Not only does that occur without any penalty, but it also avoids any tax being applied to the earnings. Plus, it provides an additional 2-3 decades of tax-protected growth. What's not to like?
Starting in 2024, there is one more escape valve to a 529—the 529 to Roth IRA rollover. Up to $35,000 (not indexed to inflation) can be rolled over to THE BENEFICIARY'S Roth IRA tax- and penalty-free. There are some rules, however.
- The money must have spent at least 15 years in the 529
- The rollover replaces the regular Roth IRA contribution for the year; it is not in addition to it.
- You cannot roll it all in at once, only an amount equal to that year's contribution limit. For example: $7,000 in 2024.
- The $35,000 is not indexed to inflation.
- The beneficiary must have sufficient earned income to make the contribution. That means a retiree or a single unemployed person can't do a 529 to Roth IRA rollover because there is no earned income.
More information here:
Doing 529 to Roth IRA Rollovers for Yourself
However, nobody who has been emailing me for the last year is really interested in using the 529 to Roth IRA rollover as an escape valve. They are most interested in doing this for themselves. They're typically a 40-year-old doctor who is really into personal finance, does a Backdoor Roth IRA each year, and does all that can be done to lower the average expense ratio in the portfolio. They're maximizers (rather than satisficers) in every sense of the word. They want to eke out every benefit they can from their investments and the tax code.
For these maximizers, I want to do two things today. First, I want to attempt to quantify the size of the potential benefit of doing this so they can properly decide if the juice is worth the squeeze. Second, I want to make sure they understand all of the ways this can go sideways on them.
What Is the Maximum Potential Benefit?
What is the maximum benefit you can get from opening a 529 for yourself, letting the money sit there for 15 years, and then rolling it over to a Roth IRA instead of making your regular Roth IRA (presumably Backdoor Roth IRA) contributions for the next 3-4 years or so. Why 3-4 years? Because that $35,000 is not indexed to inflation but the annual IRA contribution limit is. Presumably in 15-18 years at 3% inflation, you'll be making an annual IRA contribution of something like $11,500.
In reality, the benefit comes down to the tax savings on the money for being in a tax-protected account instead of a taxable account. For simplicity's sake, let's run our example for 17 years. Now, we need to make some assumptions. My assumptions seem reasonable to me. If they do not to you, then change them and run the numbers yourself.
I'm going to assume 8% returns before taxes and before 529 fees but after expense ratios. I'm going to assume an 18.6% Long Term Capital Gains/Qualified Dividend bracket throughout. I am going to assume a 0.13% 529 fee (this is the fee in the Utah 529 for a customized asset allocation). We're going to assume the yield on the investments is 2% a year and is all qualified dividends. We are going to assume you're in a tax-free state. We also assume that you're already maxing out all of your other tax-protected accounts, so we're just comparing investing in taxable to investing in a 529.
If we're going to earn at 8% or so, we'll assume that we're only talking about putting something like $10,000 in there initially. That's because $10,000 growing at 8% a year is equal to $37,000 after 17 years.
In the taxable account, that $10,000 will compound at 8% – (2% × 18.6%) = 7.63%. So, $10,000 growing at 7.63% per year for 17 years is $34,903. Now, we'll also need to pay LTCGs on the gains. However, the gains are not just $34,903 – $10,000 = $24,903. The basis is higher than that because of the reinvested dividends. For example, in the first year, you're reinvesting $163. In the last year, you're reinvesting $528. Just to make it easy, let's assume $5,100 ($300 × 17) of that $24,903 is also basis. So the LTCG tax is 18.6% × ($34,903 – $10,000 – $5,100) = $3,683. The total amount left after tax is $31,220.
In the 529, that $10,000 will compound at 8% – 0.13% = 7.87%. After 17 years, you'll have $36,250. The difference is $36,250 – 31,220 = $5,030.
The best-case scenario is that this scheme is going to net you something like $5,000 or about $10,000 if you do it for your spouse too.
What Can Go Wrong?
While $10,000 may not be all that much in comparison to a physician retirement nest egg of $2 million-$10 million, it sure beats a kick in the teeth. Why not do it? Ten grand is 10 grand. Actually, there are a few reasons why you may not wish to do this.
#1 You May Not Have Earned Income in 15 Years
Maybe in 15 years, you'll be retired, but you still want to spend this money on yourself and not just change the beneficiary to a grandkid. Now what? Well, you now have to pull the money out of the 529 and pay taxes and a 10% penalty on it. Let's say you're in the 24% federal bracket. How much of that $36,250 is going to disappear?
($36,250 – $10,000) × (24% + 10%) = $8,925
You're going to be left with $36,250 – $8,925 = $27,325, which is $3,895 less than you would have if you had just invested it in the taxable account in the first place.
#2 Maybe Congress Changes the Law
Congress could change the law or the IRS could change how it is implemented. Maybe it becomes means-tested. Maybe this option goes away completely. Or it becomes attached to an additional penalty. Either way, you still have money stuck in a 529 that you wish you had just invested in a taxable account.
#3 You Deal with the Hassle
Now you have an extra account (or two) to deal with each year. Simplicity is worth something. Is it worth $5,000-$10,000? Only you can decide.
#4 Death, Disability, Divorce, Dementia, Delirium
What if one of the Ds gets to you in the next 15-18 years? The odds are not zero. Now, this additional complexity becomes someone else's problem. Is that person capable of maintaining this plan to leave this money alone for 15 years and then do three or four rollovers into your Roth IRA? If you die, will the contingent beneficiary be able to keep the plan going for them (i.e., earned income in 15 years and a sophisticated financial understanding)? Seems doubtful.
#5 What If You Need the Money Early?
Admittedly, this seems unlikely given that you're maxing out all your tax-protected accounts, but it could happen. Again, you'll be paying ordinary income tax rates plus 10% on the earnings.
#6 What If You Can Invest Very Tax Efficiently in a Taxable Account?
Katie and I don't pay capital gains taxes—at least not so far in our life—and I'm sure we wouldn't pay on a $37,000 bill. We've just got too many capital losses saved up from tax-loss harvesting and we're charitable enough that we can flush many of the capital gains out of our taxable account and into our Donor Advised Fund. If you take away that final LTCG bill, the maximum benefit of the 529 to Roth IRA scheme is only about $1,350 a piece, just over ¼ of the maximum benefit. The potential penalties also seem much larger in comparison to that smaller potential benefit.
#7 What If 529s Don't Get Much Asset Protection in Your State?
Imagine you live in Hawaii and, thus, your 529 has no asset protection. If your other option would have been to put the money into a taxable account inside an asset protection trust (which is allowed in Hawaii), an (admittedly rare) above policy limits judgment not reduced on appeal could get that money.
More information here:
529s, Inheritance, and Roth IRAs for Kids
Despite Our Student Loan Debt, Here’s How We’re Filling Our Kids’ 529s
The Bottom Line
OK, we've quantified the benefit. It's probably a four-figure amount. We've outlined the risks and hassles involved. Now you have to make a decision. My decision is that I'm not going to do this for Katie and me. It introduces a little more complexity into a plan that is already pretty complex, and $10,000 just isn't going to move the needle for us.
What do you think? Are you funding a 529 for yourself while planning to use it for your Roth IRA contributions in 15-18 years? Why or why not?
I am one of those people who overfunded my kids 529’s. At the end of their college careers, child one has $180,000 left over and child two has $30,000 left over. My question is, I have seen multiple rules about moving some of the money to a Roth IRA for the kids. What I would like to do is even out the 529s and then distribute over time $35,000 into the kids Roth. But some articles say that the 529 has to be open for at least 15 years but others say, such as this article, that the money has to be in there for 15 years. Can I even out the money and then distribute it or do I need to distribute it and then even it out?
This is part of the issue and why I tried to delay writing this article for so long. There are a lot of questions like yours for which the answers simply have not yet been provided. Probably best to make sure you meet both criteria for now.
What are you going to do with the rest of the money? Grandkids?
15 year and 5 year rule interpretations are unclear.
20 years ago I opened and funded my son’s 529 in MA. 12 years ago I rolled over or opened a second account in NV. 3 yrs ago I rolled over all of his 529 funds to Utah.
Have I accumulated the necessary 15 years or only 3 years?
Record keeping.
I shredded records from 10 years ago, going beyond the normal 7 year record keeping standard. Utah 529 states that they do not know when my original account was opened prior to Utah. Vanguard 529 NV states that they do not have records older than 7 years to send to me. Awaiting MA 529 but not hopeful as account closed over 10 years ago. Fortunately I found a statement from 20 years ago from my original MA 529 account.
How do you satisfy the 5 year rule if 529 accounts only distribute as average cost and not individual lots? How do you track which dollar has been there over 5 years?
Good questions. No good answers.
As soon as the kids 529s are 15 years old, which they are currently sitting at 5 year mark for each of them, I am doing it for them.
As far as mine or my psychiatrist wifes goes, with our retirement plans for a 8+figure portfolio, i agree with you,it is not going to break anything for me. yes it might get me a new set of tires for my GT3RS, provided the michelin cup2rs dont cost > 10grand in 10 more years…
This is a great analysis and one that I selfishly hope reduces the number of times I get this question in my inbox going forward.
However, most of the time I get this email, the client is not wanting to do it for themselves, they are wanting to “put $35,000 in my future high school graduate’s Roth, that way my ~$13,000 of contributions into their 529 when they are born will be $35,000 when they graduate high school and then that $35,000 will be worth ~$675,000 tax free when they are 72”. There are many CPAs and social media influencers heavily pushing this idea right now.
I have been pointing out the many issues with that idea that you mention here – it’s not $35,000 as a lump sum, it replaces the annual contribution, etc. Also I don’t think high earners are considering the pragmatic issue that the child must have their own earned income up to the contribution limit in order to make the rollover, If a hypothetical high school graduate and college student doesn’t have a job that earns at least $7000, then you can’t put $7000 into their Roth that year (or whatever the future IRA contribution limit is) . Thus, in practice, most college kids won’t be able to receive the rollover until they graduate and start earning income and then we run into another problem.
This strategy also won’t work if the beneficiary makes too much money to be eligible for direct Roth IRA contributions ($146,000 for a single person in 2024). In other words, the 529 money cannot be used for backdoor Roth IRA contributions. If the child can’t contribute while they are in undergrad and professional school because they don’t have earned income and then they graduate into a ~$150,000 job, the strategy won’t ever be actionable. At least, that is my understanding based on the current and incomplete rules we have at our disposal. Please correct me if I am wrong.
In short, these YouTube videos going around that say “turn $10,000 into $1 million tax free for your kids” have some holes in the logic.
Per Fidelity:
“Unlike regular Roth contributions, which have modified adjusted gross income limitations, conversions to a Roth IRA from a 529 aren’t similarly restricted at this time.”
That’s news to me. Do they cite any source for that?
Okay found the article: https://www.fidelity.com/learning-center/personal-finance/529-rollover-to-roth
Here’s their disclaimer on that point:
2. The Roth contribution limit is the lesser of the annual contribution limit or the 529 beneficiary’s income for the year. The contribution limit starts phasing out when an individuals adjusted gross income is greater than $138,000 and is fully phased out after $153,000. For couples, the contribution is reduced starting at $218,000 and phased out altogether at $228,000. However, under SECURE 2.0 this phase out is adjusted for the 529 rollover but may not permit a full contribution in all cases. You should consult a tax advisor regarding your specific situation.
Sounds like they’re not too sure either.
Even the same paragraph that includes your quote changes its mind by the end of it:
Unlike regular Roth contributions, which have modified adjusted gross income limitations, conversions to a Roth IRA from a 529 aren’t similarly restricted at this time. Such a transfer would be subject to Roth IRA annual contribution limits. However, there may be instances where the 529 beneficiary is not eligible to transfer the full amount of the annual Roth IRA contribution limit from the 529 because the 529 beneficiary had no income or small income during a calendar year, made the maximum contributions to a Roth IRA or a traditional IRA during the same calendar year, or had a relatively large income.2
I also have not found anything from the government that explicitly states there is no income limit for the rollover but I am seeing that claimed not only in individual blogs but on sites that get scrutiny from a lot of financial advisors.
“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.”
https://www.journalofaccountancy.com/news/2023/jul/the-new-529-rollover-roth-ira.html
It’s great news, assuming it’s true, but I’d still like to see someone cite chapter and verse. I’ll actually be a little surprised if that’s the way it is, but I’ve been surprised (and wrong) before. I’ll update the article suggesting there’s at least some controversy on that point.
IANAL but Sec. 126(b)(2)(B) of SECURE 2.0 is titled “Waiver of Roth IRA Income Limitation,” though I can’t make heads or tails of the amendments to 408A(c)(3) or 592(c)(3)(e). Perhaps there’s still too much uncertainty here?
I think you may have found it:
(B) WAIVER OF ROTH IRA INCOME LIMITATION.—Section 408A(c)(3) is
amended by adding at the end the following new subparagraph: ‘‘(E)
SPECIAL RULE FOR CERTAIN TRANS FERS FROM QUALIFIED TUITION PROGRAMS.—
SECURE 2.0 ACT, Sec. 126 3 529-To-Roth IRA Rollovers
The amount determined under subparagraph shall be increased by the
lesser of—
‘‘(i) the amount of contributions described in section
529(c)(3)(E) for the tax- able year, or
‘‘(ii) the amount of the reduction determined under such
subparagraph (deter- mined without regard to this
subparagraph).’’.
I’ll change my two articles talking about this. It doesn’t look like this was in the original legislation but it also appears this change wasn’t very widely publicized.
Am I correct in assuming there is nothing to stop the parent from changing the beneficiary to themselves and using the $35,000 to fund their own Roth IRA contributions?
I’m not saying this is a good strategy, just asking in the name of being comprehensive?
Yes, you can change beneficiary and owner at any time. There can be gift tax and generation skipping tax implications though but exactly how those play out with 529s is a little hard to sort out.
If my nieces and nephews don’t spend their entire 529s I plan to make them the owners. For my kids’ 529s, I’ll keep ownership.
Well done TomCFP!! Nice find! Also a big thank you to Boston John and PharmMedMD for prompting the ongoing investigation. I am so grateful for this community…..it really does takes a village to figure this stuff out together sometimes.
This is a meaningful piece of information as it relates to the 529-to-Roth strategy. All of macro points in Jim’s post are of course still relevant but it is nice to know that the income limitation issue isn’t a consideration as I outlined in my previous comment.
So reading this exchange. I’m doing this for my college age student who has earned income to fund her Roth
So you guys conclude there is no income limits to doing a direct rollover.
Second – after i fund the 35k for my daughter (and she is done with schooling) can i make myself beneficiary and do another 35k?
Jon – Yes, I agree on both fronts*
*all other rules must be met; i.e. 529 open for 15 years, annual contribution limits (i.e. $7000 in 2025), etc.
It is my opinion that it typically does not make sense for the parent to use the 529 money to fund their own Roth IRA in lieu of “normal” backdoor Roth contributions when compared to leaving the $35,000 aggressively invested for the future grandkids (25+ years of tax free growth and tax free withdrawals).
No income limits on rollovers that I’ve ever heard of.
Yes, you could do that. I kind of doubt it’s worth it for you though. Will you have still have earned income in 15 years so make those 529 to Roth rollovers?
Do you think you need to reset the 15 year clock when you change beneficiaries?
I think so, yes, but I can’t cite chapter and verse so I could be wrong.
We have college kids right now, and will have over-funded 529s due to scholarships and the market doing so well. We opened these accounts 20 years ago and they meet all the criteria that I can find. So doing this makes sense for us.
However, there is another complexity, which hasn’t been mentioned — while the Feds allow for this to be tax free rollover, for those of us that live in state’s that gave a tax break on depositing into the 529s, they want to claw-back that tax savings. While that seems reasonable (I don’t mind paying the money), I do think its going to be a headache.
For example, NY just mailed this out with their end of 2023 statement:
“New York State Treatment. If you are a New York State taxpayer, the distributions for K–12 Tuition Expenses,
Qualified Loan Repayments, and Roth IRA Rollovers are considered New York Nonqualified Withdrawals and will
require the recapture of any New York State tax benefits that have accrued on contributions.”
That’s very state specific, but something to watch out for for sure. Thanks for sharing the NY Law on it.
I just heard The Retirement and IRA Show podcast (#2410) discuss this in some depth. There is an article that details that status of this clawback in all states here: https://www.529conference.com/status-board-secure-2-0-529-state-updates/
Among those states that will require a clawback: Utah. I don’t think Dr. Dahle has to worry as he has said he will change beneficiaries to grandchildren, but I’m sure that are many other over-funders that will want to follow this issue closely!
If it was 70k extra Roth contribution I’d do it. But since it’s just replacing other backdoor not worth it.
I will mention the state deduction in VA. If I put 20k for the 2 of us in there we’d also get 6% back on tax savings from it over a few years so that adds $1200. But that only makes it 11k total so still not worth it to me.
“The beneficiary must have sufficient earned income to make the contribution. That means a retiree or a single unemployed person can’t do a 529 to Roth IRA rollover because there is no earned income.“
I have read conflicting information on this. Articles on Bankrate and Investopedia state earned income is not required for this rollover. Many others agree with the statement above. Are there reliable sources confirming that earned income is required?
We have overfunded our 529s and I’m interested in the ability to fully fund my children’s Roths even though I doubt they’ll earn the full $7,000 this year.
For example, see very last sentence of this pullout from the article https://www.investopedia.com/personal-finance/how-new-tax-changes-promote-529-investments/
529 to Roth IRA Rollovers—Coming in 2024
The SECURE 2.0 Act of 2022 was signed into law in December 2022. Along with other retirement account changes, the law introduces another use for excess 529 funds: retirement. When the law goes into effect in January 2024, up to a lifetime maximum of $35,000 can be transferred to a Roth individual retirement account (Roth IRA) in the name of the 529 account’s beneficiary.
Of course, there are some caveats:
The account must have been open for at least 15 years.
The money must be transferred according to annual Roth IRA contribution limits.
This means that account owners cannot roll over a lump sum of $35,000; instead, they will have to take several years to fund the total amount. Still, the new provision provides an opportunity to fund a Roth IRA for your child even if the child is unemployed, a stipulation that handicaps many young people.
That’s interesting. I’ll see if I can find something definitive.
This is kind of why I didn’t want to run this article yet. The details just haven’t been published or at least widely made known.
I opened a NYSaves 529 plan twenty years ago and inadvertently named myself as beneficiary and remain so as we have not tapped into it for our daughter’s current college expenses. I am a non-working spouse, so no earned income, but husband fully funds his 401K annually. Wondering if I can move 35K over the years to my own established Roth IRA?
Yes. If you’re eligible to contribute, and you are by virtue of your husbqnd’s earnings, then it can be done using 529 money stqrting this year.
Great! Thanks for the confirmation.
I do not plan to be working in 15 years. However, I will be receiving distributions from my 457b. As this is deferred compensation does it count as earned income? If so, it could serve as a backdoor of sorts to live off the deferred compensation while rolling the 529 into my Roth.
No, it doesn’t count. You won’t pay payroll taxes on it and you paid the payroll taxes on it when it went into the 457b. Even though it’s “deferred comp”, it’s earned income when it goes in, not when it comes out.
That makes sense. I guess I was just thinking of federal income taxes. It’s an unlikely scenario anyway.
Great reading. I love changes in tax codes that are not completely thought out….
Here is our scenario, which I will ask our tax and financial planning consultants about, but find fascinating….
We have well funded IRA’s. We can’t do backdoor or mega backdoor Roth deposits for that reason (can’t/don’t want to handle the tax burden of prorating with pre tax IRA contributions). My read of this law is that it allows me to change the beneficiary of the 4 children to my wife or I for the year, then convert 35K from each of their overfunded 529’s to us and add 140k to a Roth IRA in one year, funded over 5 years of contributions, without the typical problem of having to convert a ‘standard’ IRA and thus completely avoiding the tax problem….
I have to be reading this wrong, but who knows? Any thoughts?….?
There’s no pro-rata issue with the Mega Backdoor Roth IRA.
No, you cannot add $140K to a Roth IRA in a year. The limit is the contribution limit for that year. But you’re right that this is probably a way around the pro-rata rule.
Not sure if there are differences in plans, but above, you state:
“Starting in 2024, there is one more escape valve to a 529—the 529 to Roth IRA rollover. Up to $35,000 (not indexed to inflation) can be rolled over to THE BENEFICIARY’S Roth IRA tax- and penalty-free. There are some rules, however.
1. The money must have spent at least 15 years in the 529…”
If I understand my plan correctly, I think the account has to be open for 15 and the money has to be in the account for at least 5 years…
According to my plan description:
“Beginning January 1, 2024, rollovers will be permitted from a 529 plan account to a Roth IRA without
incurring federal income tax or penalties, subject to the following conditions:
• The 529 plan account must be open for 15 or more years, ending with the date of the rollover.
• Contributions and associated earnings that you transfer to the Roth IRA must be in the 529 plan
account for more than 5 years, ending with the date of the rollover.”
Am I understanding this correctly?
Sounds like that’s the way your plan is working. Not sure that’s standardized across plans though.
I am trying to help my brother figure out how to handle his leftover 529 money. The account has been open and completely funded for 20+ years He received a scholarship in college and thus did not have to use much of his 529 funds. He is married and they are not high income earners. He has ~$25k in his College Illinois prepaid tuition plan. His wife has about $15k in student loans with modest 5% interest. I have a couple of questions but also realize there may not be answers (yet).
1. Can he pay off his wife’s loans directly (up to the $10k lifetime max) or does she have to be the beneficiary?
2. Can he still withdraw the money tax & penalty free that is equivalent to the scholarship he received even if completed college 10 years ago?
My original plan was to have him pay off $10k in loans for his wife and then do 529-to-roth conversions over the next 2-3yrs to empty the account. However, when calling College Illinois they state that they are only able to do one distribution for the account & then would close it? Seems strange and cannot get a good answer as to why (prepaid vs savings plan? They longer accepting new applicants so maybe trying to close it down?). I was going to leave this as a speakpipe but he is trying to get this figured out as soon as possible. Thank you for any insight!
1. Beneficiary. But the beneficiary can be changed if the owner agrees to it. Is he the owner too?
2. I don’t know if there is a time limit on that. I bet it needed to be pulled out the year he got the scholarship, but I’m not 100% sure. Let me look into it…..
Per this: https://www.bogleheads.org/forum/viewtopic.php?t=326435
there are no clear guidelines. So I’d go for it and call the gray areas in my favor and see what happens.
Not sure what College Illinois’s problem is, but you can always roll 529 money from one provider to another that won’t give you as much hassle.
My mother is the owner and brother the beneficiary.
I guess the only other thought that I cannot seem to get an answer on is if he changed from his current 529 to another 529 account, would that reset his timeline to do Roth conversions? I would imagine it would but cannot find anything in writing.
If doing Roth conversions isn’t possible then I would think he should just change the beneficiary to his wife to pay off $10k worth of loans. Then they could leave the remaining $15k in the account to grow for their child’s college tuition. I don’t think withdrawing the remaining amount and paying taxes and fees would be worth it.
I just think to your adage of putting on your oxygen mask first. Was hoping to have him do these conversions to help with their retirement before saving for their kids college. But maybe not an option unfortunately. Thanks for the reply!
Well, per this: https://www.savingforcollege.com/article/strategies-for-using-a-529-plan-to-repay-student-loans
You can take a tax-free 529 plan distribution to repay up to $10,000 in student loans owed by each of the beneficiary and the beneficiary’s siblings.
So this wouldn’t work unless your mom changed the beneficiary to the wife/DIL. But no, swapping 529s doesn’t help and probably hurts.
Remember 529 to Roth rollovers just take the place of regular contributions, they’re not an additional thing.
Any new updates on these rollovers and long term viability? My state offers a $2500 tax deduction for 529s so I’m considering opening one just for this- would eventually use 10K towards my student loans (still have ten years left to pay so figure around year 8 I could start pulling from 529 for monthly payments) and rollover the rest into IRA down the road. Would free up future money (7K or max) to divert to other things each year
I’m a veterinarian, not a human physician, so lower earning potential over time. I plan to retire in 20-23 years.
If it’s worth the hassle to you, go for it. I kind of doubt that 15 years from now it will be for most WCIers but perhaps the lower your income, the more hassle you’re willing to go through for a $2500 deduction. I mean, I spent 4 hours yesterday repairing my truck mirror to save $2,000 (after-tax). There was much frustration but I pulled it off. This probably isn’t even that much frustration.