Turn College Savings Into Retirement Wealth: How to Convert a 529 Plan to a Roth IRA
TRANSCRIPT
[00:00:03] Antwone Harris: Hi, this is Antwone Harris with Platinum Bridge Wealth Strategies, and you may ask yourself, how can I turn a 529 account that's typically used for college expenses into a Roth IRA account for myself or for my child or for my grandkids or somebody that I care about? There's a way to do it provided that certain provisions are in place.
[00:00:24] Now, you may have a child that you put a ton of money away for college, and they decided for whatever reason that they weren't going to go to college. They didn't finish college, or hopefully they got a scholarship. You didn't need all the 529 money. So what can you do with the excess money? You're able to pull the money out and use it for yourself.
[00:00:44] But if you use it for non qualified college expenses or educational expenses, then you have to pay income taxes and a 10% penalty, which is not great. So now pursuant to Secure Act 2.0 and some of the updates that we saw for 2024, you're actually able to convert that account, a portion of that account even, to a Roth IRA account.
[00:01:07] The account would have had to have been in place for at least 15 years. The beneficiary, the 529 account, and the owner of the Roth IRA account have to be the same person. Say, for example, if you're trying to do this for yourself, you're saying, "Hey, my child didn't go to college and I had this extra money in this 529 account." and the beneficiary was your child,
[00:01:28] you have to change the beneficiary to yourself and then the Roth IRA account has to be in your name. The owner of the Roth account has to have income. You have to have income and that income has to be as much as the contribution to the Roth IRA account.
[00:01:43] You are still subject to the annual contribution limit for the Roth IRA account for any conversions that you do per year. So for 2024, you're able to contribute $7,000 to a Roth account.
[00:01:56] If you're over 50, you can do $8,000 with the catch up provision. You're still subject to those annual limits. So say you have a hundred thousand dollars in a 529 account, you can only convert up to the annual limit each year. So you could do 7,000 this year, whatever the limit is next year, you could do another 7,000.
[00:02:13] There's a lifetime max for conversion from the 529 to the Roth IRA account of $35,000 as of right now. So you're able to do the annual limit. For example, 7,000 this year, you can do 7,000 next year until you get the 35,000 then you stop.
[00:02:32] Any contributions that you've given for the previous five years are ineligible.
[00:02:36] So if you make contributions within the last five years, those contributions are not eligible for conversion. Anything before that would be eligible. A couple of things we need to think about. The IRS is going to come out with some additional details around this to make sure that we wrap up any loose ends.
[00:02:52] This is definitely something that you want to talk to your advisor about because you want to make sure you're doing it properly. It's a trustee to trustee transfer. You want to have everything set up properly to be able to facilitate something like this. But the good news is you can convert that old 529 account to a Roth IRA account for yourself or for somebody that you care about that you're related to.
[00:03:13] Good news is you can convert an old 529 account to a Roth IRA account for yourself or for a relative. It's a great idea. You want to make sure you're doing it properly. If you have any questions, please reach out to me. This is Antwone Harris with Platinum Bridge Wealth Strategies. I'll talk to you soon.