529 Plan Roth Conversion


WSJ today has article that starting this year, un-used 529 Plan funds can be rolled over to a Roth IRA for the beneficiary. Fidelity article explains.

Conversion max is $35K for a 529 Plan in existence for 15 years. Contributions within last 5 years cannot be converted.

529 Plan contributions are covered by gift tax. Up to $18K per individual recipient per year are free of gift taxes but more must be reported. Spouse can make a second $18K contribution.


Not exactly.

Conversion limits: The lifetime limit for an individual to receive is $35k. Additionally, the amount converted is limited to the Roth IRA contribution amount each year - currently $7,000 for those under 50. So if the 529 plan balance is in excess of the annual Roth contribution limit, it will take multiple years to do the conversion. Additionally, the conversion counts towards the individual’s IRA contributions for the year, so if a maximum contribution is made through converting 529 funds, any additional IRA contributions made by the individual to their IRA (Roth or Traditional) would be excess contributions and be subject to penalties.

529 plan age: It’s not that the 529 plan has to have been in existence for 15 years, it’s that the 529 plan has to have been held for the beneficiary for at least 15 years. Since 529 plans can only have one beneficiary at a time, but do allow the beneficiary to be changed, unless the 529 plan’s beneficiary has remained the same for the entire life of the account, it’s not sufficient for the 529 plan to be 15 years old. What is required is that the beneficiary who’s Roth IRA is receiving the conversion has been the named beneficiary of the 529 plan that is funding the conversion for at least 15 years.

It would probably be more correct to say that 529 plan contributions are gifts and therefore, subject to gift tax rules. I would point out that the 529 plan contributions need to be added to any other gifts given to a recipient during the year - so if, for instance, you pay for room and board at a boarding school, fund a 529 plan for the same kid and then give them a car for Christmas, if the total of those amounts exceed the annual limit ($18k for 2024 - can change annually), you are required to file a Form 709 to report the total value of the gifts.