Beyond Bulls & Bears


SECURE 2.0 creates new backdoor Roth opportunity

Here’s a look at how a new legislative provision may be an opportunity to help jump-start retirement savings for children while saving for college at the same time.

Looking deeper into the new SECURE 2.0 provisions—roughly 90 in total—one section presents some intriguing planning opportunities for those funding college savings plans.

Beginning this year, section 126 of the SECURE 2.0 Act allows unused funds from a qualified college savings plan (i.e. 529 accounts) to be transferred to a Roth IRA free of tax or penalties, up to a lifetime limit of $35,000. This provision offers some peace of mind for parents (or other 529 owners) concerned about having to make a non-qualified withdrawal from a 529 plan if not all the funds were used.

Here are the rules around the provision:

  • The aggregate, lifetime amount eligible for transfer from a 529 plan to a Roth IRA is $35,000 per beneficiary
  • The Roth IRA must be established in the name of the 529 beneficiary
  • Annual contribution limits apply to transfers. For 2023, the contribution limit for IRAs, including Roth IRAs, was $6,500, and for 2024, the IRA limit increases to $7,000.
  • The 529 beneficiary who is receiving the transferred funds in a Roth IRA is subject to the same earned income requirement that applies to all IRA contributions (i.e., in order to make an IRA contribution you, or your spouse, must have employment income)
  • However, income eligibility requirements for making Roth contributions do NOT apply. (For 2024, income phaseouts to make Roth IRA contributions begin at the modified adjusted gross income of $146,000 for single taxpayers, and $230,000 for married couples filing a joint tax return)
  • The 529 must be established for at least 15 years before a transfer to a Roth IRA can occur
  • Contributions (and associated earnings) made in the 529 plan during the last five years are not eligible to be transferred to a Roth IRA (this is meant to deter someone from making a large contribution into an existing 529 plan and trying to transfer funds to a Roth IRA immediately to avoid income limits associated with Roth IRA contributions)

More clarity needed

With legislation the size and scope of SECURE 2.0, expect additional guidance on certain provisions where the legislative text may be subject to further interpretation.

One item raised in the first few weeks following passage of the law is whether a change in the 529 beneficiary would trigger a reset of the 15-year clock requirement for transferring funds to a Roth IRA. Additionally, would the new 15-year clock reset if the 529 owner rolls from one state’s qualified tuition plan to another? Whether or not we receive guidance providing clarity on these questions remains to be seen.

Some 529 owners will be interested in the resolution of these questions. For example, a parent could conceivably change the 529 beneficiary from a child and name themselves as the beneficiary, then subsequently transfer funds to a Roth IRA in their name. Similar to the current backdoor Roth strategy, this could be another method of funding a Roth IRA if reported income is too high to make a regular Roth contribution. Of course, the question here is whether the parent would have to wait another 15 years before making the transfer.

Planning considerations

The new provision may be an opportunity to help jump-start retirement savings for children while saving for college at the same time. For example, if a 529 account is established during the first year of a child’s life, the parent (or grandparent) could begin transferring funds from the 529 to a Roth IRA when the child is roughly 16 years old, assuming the child has earned income from working.

The language in the legislation ties the $35,000 lifetime limit to the beneficiary level, so a parent could transfer that amount for each child. This may allow time for contributions to appreciate tax free within the 529 and eventually be transferred to the Roth where it could be withdrawn tax free if requirements are met.

Also, a parent could allocate some funds to a 529 while naming themselves as the beneficiary. If those funds are needed for college in the future, the parent could change the beneficiary to the student. If not, the parent could remain the beneficiary and begin transferring funds to a Roth IRA for themselves once the 529 account has been established for 15 years. Of course, these planning considerations may be impacted by future interpretation and guidance from the IRS.



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