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Navigating the new 529 to Roth rollover (Secure Act 2.0) 2024 begin year.
A couple of somewhat obvious questions come to mind:
- What defines a "plan" (for the 15 year rule requirement)? "It is unclear whether this 15-year period restarts when there is a beneficiary change", according to one site. Another suggests that "changing designated beneficiaries ... will likely restart that 15-year clock."
Another wrinkle to this question: what happens when you roll over the 529 plan from one state to another? With a Roth-to-Roth rollover, the Roth clocks don't restart. But this is a new rule and involves a 529-to-Roth rollover.
- Will your state follow the federal rules? Or will it tax the 529 rollover as a distribution?
While no one is sure which states will play along with federal rules and which ones will choose to tax 529 to Roth IRA rollovers, California is one state that seems likely to levy income taxes on these rollovers. This is based on the fact the state hasn't updated their rules to match federal laws regarding 529 plans, including ones built on student loans and using 529 plan funds for private K-12 tuition.
Hi @msf Agree, that other points need to be sorted. Although your points don't apply to us, but will for others. We plan to contact UTAH in 2024 for other information they have available about this money move. They're quite good with documentation and keeping everything up to date, We've not attempted to dig through the IRS site. The main purpose of the post is a reminder of the change. Thank you for your insights.
Comments
- What defines a "plan" (for the 15 year rule requirement)? "It is unclear whether this 15-year period restarts when there is a beneficiary change", according to one site. Another suggests that "changing designated beneficiaries ... will likely restart that 15-year clock."
https://www.daypitney.com/insights/publications/2023/06/fog4-secure-2-0-permits-rollovers-529-plans-roth-iras/
https://www.savingforcollege.com/article/roll-over-529-plan-funds-to-a-roth-ira
Another wrinkle to this question: what happens when you roll over the 529 plan from one state to another? With a Roth-to-Roth rollover, the Roth clocks don't restart. But this is a new rule and involves a 529-to-Roth rollover.
- Will your state follow the federal rules? Or will it tax the 529 rollover as a distribution? https://www.forbes.com/sites/robertfarrington/2023/11/21/warning-ability-to-convert-529-funds-to-roth-ira-could-be-problematic/?sh=5accc8a04abc.
Maybe there's something more definitive. These are just questions, not answers.
The main purpose of the post is a reminder of the change.
Thank you for your insights.