You know the thing about a tree falling in the woods? Well, we’ve got a similar question: if someone has money left over in their 529 after paying for college, what can you do with it?
That’s right, apparently having money left over after paying for college is actually a thing that has happened to at least one person one time somewhere! We’re shocked, too. 🤯
While we are skeptical of just how widespread of a “problem” this is that it needs a legal solution, we’ll explore it anyway. You know, being thorough and all. 😉
Here are Five Fast Facts about 529 rollover-to-Roth IRA action:
- 📝 New Law - A new law took effect this year that allows unused 529 funds to be rolled over into Roth IRAs tax free. This could save money compared to just withdrawing those funds, which might slap you taxes or penalties. Though trying to figure out this whole new process might be penalty enough.
- 🔮 Maxes - There are limits, of course. The total amount rolled over can’t be more than $35k per beneficiary, though how they’d monitor that is anyone’s guess. Perhaps a seance…?
- ⏲️ Durations - There are also time considerations. The 529 account has to have been open for at least 15 years, and contributions added in the last five years can’t be rolled over. So you can roll it over, except for the part you can’t roll over.
- 🔍 Other Requirements - There are several other catches, too. The Roth IRA has to have the same beneficiary as the 529, the beneficiary has to earn at least as much income as the rollover amount would be, and normal Roth IRA contribution limits would apply, too. Also, state laws might have some hooks on things that would require other hoops to jump through.
- 👍 Key Difference - The normal income limits don’t apply to the 529 recipient. This means the person doesn’t have a cap on how much they can make in order to contribute the full amount for the year (normally they do). Oh, good, because once you finish paying for college you wouldn’t want to be penalized for earning too much money!
🔥Bottom line: We’re still not entirely sure how often this new law will be used. But we suppose it’s good that it’s there, even if for just a few people. Anything that can save on taxes and penalties and keep more of your hard-earned money in your own pocket is a good thing. We wish you good luck for both having excess money after paying for college and being able to use it like this! If you can do that, you should definitely buy a lottery ticket.
Can you use this new law?
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