The world of retirement savings is constantly evolving, and 2024 brings an exciting new possibility: the ability to transfer funds from a 529 college savings plan to a Roth IRA. While this can be a strategic move for some, it's important to understand the rules and considerations before making the leap. Let's break down the key questions and factors you should consider:

Eligibility Check

• Account Age:  First things first, has your 529 account been open for at least 15 years?  If not, you'll have to wait a bit longer.
• Beneficiary and Owner: Are the beneficiary of your 529 plan and the owner of the Roth IRA the same person? This is a crucial requirement.
• Prior Roth Contributions:  Did the beneficiary make any traditional or Roth IRA contributions for the current tax year? This will impact how much you can transfer.
• Prior 529-to-Roth Transfers: Has the beneficiary ever received a 529-to-Roth transfer before? Remember, there's a lifetime limit of $35,000 per beneficiary.

Contribution and Income Considerations:

• Five-Year Rule:  Has the specific amount you plan to transfer been in the 529 account for at least five years? This is important for avoiding penalties.
• Earned Income: Did the beneficiary have earned income for the current tax year?  The transfer amount is limited to the beneficiary's earned income or the annual Roth IRA contribution limit, whichever is lower.

Strategic Decision-Making:

• Benefits of Transferring: Does a 529-to-Roth transfer make sense for your beneficiary's financial situation?  It can be beneficial to kick-start Roth savings, avoid Roth income limits, or provide flexibility if college plans change.
• Other Qualified Education Expenses: Will the beneficiary need the funds in the 529 for qualified education expenses? If so, consider prioritizing those needs before transferring to a Roth IRA.
• Multiple Beneficiaries: Are you considering transfers for multiple beneficiaries?  Be careful when switching beneficiaries or owners, as it could impact your eligibility.

If, after careful consideration of the above points, you believe a 529-to-Roth IRA transfer is right for you, consult with a financial advisor to ensure it aligns with your overall financial goals. They can help you understand the tax implications, potential benefits, and any other relevant factors.

Remember, the new 529-to-Roth transfer option offers exciting possibilities, but it's essential to make informed decisions based on your specific circumstances. Need personalized guidance to navigate complex financial decisions? Schedule a consultation with a SAVVI advisor today!

Disclaimer:

Savvi Financial encourages you to consult with a financial professional to discuss your individual situation and determine the best course of action for your financial goals. This information is for educational purposes only and should not be considered financial advice.