New Proposal Would Loosen Restrictions on 529-to-Roth Transfers

A recently introduced bipartisan proposal in Congress would loosen the restrictions on transferring 529 dollars to Roth accounts if those funds are not needed for educational purposes. Under the SECURE Act 2.0, taxpayers are permitted to roll Section 529 plan dollars into a Roth IRA if certain conditions are met. For the rollover to be permitted, the Section 529 plan must have been maintained for at least 15 years. Any 529 plan contributions made in the prior five years cannot be rolled into the Roth IRA. That includes earnings on any contributions that were made in the five years leading up to the rollover. Further, the most that a taxpayer can ever move from a 529 plan into a Roth IRA is $35,000 over the course of the taxpayer's lifetime. The newly announced proposal would lift this $35,000 lifetime cap so that otherwise-qualifying taxpayers could roll any remaining 529 dollars into a Roth over time. For more information on the existing rules for rolling over 529 plan dollars, visit Tax Facts Online. Read More: Link to Q690.