By Vincent R. Birardi, CFP®, AIF®, Wealth Advisor at Halbert Hargrove

Can you convert a 529 to a Roth IRA? Yes.

Starting next year, you can roll over up to $35,000 in unused funds held within a 529 education savings plan into a Roth IRA.

If you hold a 529, this new Roth IRA conversion option could help dispel any concerns you may have about possibly overfunding that account. In the past, overfunding often resulted in a hefty tax bill and additional costs for those who tried to remove the unused funds as nonqualified withdrawals.

Here are key things to know about converting a portion of your 529 account funds into a Roth IRA:

  • This will be available starting January 1, 2024.
  • 529 account holders will be able to transfer, tax- and penalty-free, up to a lifetime limit of $35,000 to a Roth IRA for a beneficiary.
  • The 529 account must have been open for at least 15 years before any conversion can be initiated.
  • Conversions must comply with annual Roth IRA income and contribution limits (currently $6,500 per year) –  so conversions can only be completed over a multi-year period.
  • The annual contribution limit and income limits used will be the beneficiary’s, not the account holder’s.
  • The Roth IRA must be in the same name as the 529 account beneficiary.
  • Conversions apply only to Roth IRAs – not to traditional IRAs.

When should you convert a 529 to a Roth IRA?

This new conversion option will come in handy for those situations where either the beneficiary opts not to go to college or their actual costs are lower than the amounts that have been saved and invested within the 529 account.

Rolling unused 529 funds tax- and penalty-free into a Roth IRA is a great way to help the beneficiaries of these accounts save for their financial futures.  It’s also in line with the original intent of    those who established the account:  helping a family member defray future expenses and get ahead.  Whether funds end up going to education or saving for retirement, it’s a life benefit.

Please get in touch with your team here at HH with any questions you may have about navigating the new 529 conversion rule.

Disclaimer:

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.