Ed Slott: 529-to-Roth IRA Rollover Is No Planning Panacea

For example, “the [529] account has to be in existence for 15 years,” Slott relayed.

Advisors who have clients “with relatively small 529 balances can use this [provision] to transfer the 529 funds to Roth IRAs over several years — limited overall to $35,000, not $35,000 per year,” Slott explains.

The “biggest misunderstanding” that advisors have, according to Slott, “is that even those who qualify by getting over all the hurdles, still cannot roll the entire $35,000 in one year. It’s good, but of more limited use than most advisors realize, once they see all the limitations.”

Other “obstacles” to a rollover, Slott said, include:

• The rollover must go to the beneficiary’s Roth IRA.
• The amount that can be rolled over per year is subject to the IRA contribution limit, which is $6,500 for 2023 — in other words, it would take years to hit the $35,000 limit.
• Contributions must be in the account for at least five years before they are eligible for rollover. “Congress doesn’t want a revolving door — that is, moving funds that were never intended for education into a Roth,” Slott says.