By Andy Ives, CFP®, AIF®
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I have a question concerning Secure 2.0 pertaining to transferring “leftover” 529 plan account balances into a Roth IRA, beginning 2024. If I have no income in 2024, can I still transfer/contribute leftover 529 plan funds into a Roth IRA? Thank you!
Only the beneficiary of the 529 (for example, the child for whom the 529 was created for) can receive the “leftover” 529 dollars into their own Roth IRA as a rollover. But there are limits. A lifetime maximum of $35,000 can be rolled over, the 529 must have been open for more than 15 years, and the annual rollover amount cannot exceed the annual IRA contribution limits. If you (Mark) are the beneficiary of this 529 but have no earned income, then you cannot roll any 529 funds into your own Roth IRA, because you are not eligible to contribute to an IRA (no income). If your child is the beneficiary of the 529, and if your child has earned income (i.e., is otherwise eligible to contribute to an IRA), then 529 dollars can be rolled into a Roth IRA for the child, despite you, as the parent, having no earned income.
I am currently 72 and already have several Roth IRA accounts. If I open a new Roth IRA today, will I need to wait 5 years to make an income-tax free withdrawal on the new account even though I have other established Roth accounts that have been in place for over 5 years?
No, you will not have to wait 5 years for tax-free withdrawals from the new Roth IRA. Since you are over age 59 ½, and since you have had another Roth IRA opened for more than 5 years, you have met your obligations to have immediate tax-free withdrawals from the new account. The IRS does not care if you have multiple Roth IRAs held at multiple custodians. All they see is one big Roth IRA bucket, your age, and your original Roth IRA start year from more than 5 years ago.