Culshaw and Company LLC

One of the SECURE 2.0 ACT changes congress made at the end of 2022 was to allow a lifetime limit of $35,000 of unused funds in a 529 college savings plan to be rolled over into a Roth IRA. The rollover would be allowed without incurring the usual 10% penalty for nonqualified withdrawals and it would not generate any taxable income.

This change allows beneficiaries to get a head start on saving for retirement especially if there is a 529 account surplus.

What are the limits?

· Ownership. The beneficiary of the 529 plan must also be the owner of the Roth IRA.

· Holding periods. The 529 account needs to have been open for at least 15 years. Contributions made to the 529 plan in the last five years including earnings are ineligible for a tax-free rollover.

· Annual Limits. Penalty and tax-free rollovers must occur annually and cannot exceed the maximum contribution limits for a Roth IRA in effect in the transfer year. For 2024, that means lessor of $7,000 or the beneficiary’s earned income.

· Transfer. The rollover transfer has to be trustee-to-trustee.

Given the above, you cannot rollover $35,000 in one year. The transfer will take a minimum of five years to rollover the full lifetime amount of $35,000 into the Roth Account.

Check out our June newsletter for information on loan forgiveness under PPP, preparing an effective business plan and more tax related topics.

Portland, OR Accounting Firm | Newsletter Page | Culshaw and Company, LLC Take a look at our Newsletter page. Culshaw and Company, LLC is a full service tax, accounting and business consulting firm located in Portland, OR.

Check out our May newsletter! It covers topics such as: Additional Tax Deadlines Extended
Small Business: Tax Consequences of Crowdfunding
Employee Retention Credit Could Help Your Business
Job Loss Could Affect Your Tax Situation

Portland, OR Accounting Firm | Newsletter Page | Culshaw and Company, LLC Take a look at our Newsletter page. Culshaw and Company, LLC is a full service tax, accounting and business consulting firm located in Portland, OR.