Can I rollover my daughter's 529 account to a Roth IRA under 2024 IRS rules?

Thanks for explaining! Do contributions made by grandparents affect this in any way? My in-laws want to contribute to our daughter's 529 but I'm wondering if that changes anything with these new rollover rules.

Contributions from grandparents or other family members don't change the rollover rules. All contributions to the 529 plan are treated the same regardless of who made them. The key things that matter are the 15-year aging requirement for the account itself and the $35,000 lifetime limit. The only thing to keep in mind is that the account owner (which sounds like it's you or your husband) controls the account regardless of who contributes. So even if grandparents contribute, you'll still be the ones making decisions about investments and potential rollovers in the future.

Does it work with accounts from any state? I have a 529 through Virginia's plan but the rules seem different from state to state.

Hmm, sounds interesting but I'm skeptical. How does it handle the state tax implications? Illinois gives a tax deduction for 529 contributions but I've heard some states might recapture those deductions if you do the Roth conversion.

Yes, it works with 529 plans from all states! The tool recognizes which state's plan you have and applies the relevant rules. I've used it with both my Illinois and Ohio 529 accounts without any issues. For state tax implications, it absolutely covers those details. The analysis specifically flagged that Illinois might have recapture provisions for state tax deductions if I converted too soon. It gave me a detailed breakdown of potential tax consequences by year and suggested optimal timing to minimize any negative impact. The state-specific guidance was actually one of the most helpful features.

How does that even work? Do they hack into the phone system or something? Sounds sketchy tbh.

Yeah right. I doubt it works any better than just calling yourself. These state offices are impossible to reach no matter what.

It's not hacking at all! From what I understand, they use technology that navigates phone trees and holds your place in the queue. It's similar to customer service systems restaurants use when they text you when your table is ready. I was skeptical too, but it genuinely works. The average wait time for Illinois 529 customer service was over 2 hours last month, but I got called back within 45 minutes. And I didn't have to sit there listening to hold music the whole time - I just went about my day until they connected me. The time difference is because they're much more efficient at navigating the initial phone tree options than a human would be.

That's a really good point I hadn't considered at all! So I'm guessing we'd need to wait until our son is much older and has a job with taxable income before we could even think about doing any rollovers?

Yes, exactly! Your child would need to have earned income (with documentation like a W-2 or 1099) before they can open a Roth IRA. Most kids start getting eligible when they're teenagers with part-time or summer jobs. The good news is that the 15-year holding period for the 529 account runs simultaneously, so by the time your son is old enough to have earned income, you'll likely be meeting or getting close to that requirement as well. Just remember that the annual Roth contribution limit still applies, and they can only contribute up to the amount they earned that year (or $7,000 in 2024, whichever is less).

I helped my daughter do a small rollover earlier this year. The process was more manual than I expected. We had to: 1) Confirm with our 529 provider (also Illinois) that the account met the 15-year requirement 2) Open a Roth IRA for her at a brokerage 3) Submit a withdrawal form to the 529 plan specifying it was for a qualified rollover to a Roth IRA 4) Deposit the funds into the Roth within 60 days 5) Keep documentation from both institutions for tax filing The 529 plan didn't have updated forms specifically for this yet, so we had to include a letter explaining the nature of the withdrawal. Make sure you follow up and keep good records!

Thanks for sharing your experience! That's super helpful. I was hoping there would be a more straightforward process by now, but sounds like it's still pretty new. I'll definitely keep detailed records when we eventually do this.

Great questions! You can roll over both contributions AND investment gains up to the $35,000 lifetime limit - it's not restricted to just your original contributions. So if your 529 grows significantly over those 15+ years, you have flexibility in what portion to roll over. Regarding Illinois state tax benefits, this is where it gets tricky. Illinois does allow you to deduct 529 contributions from your state taxes, but there could be recapture provisions if you later use those funds for non-qualified expenses. The Roth rollover is considered a qualified distribution under federal law, but individual states are still figuring out how to treat these for state tax purposes. I'd definitely recommend checking with a tax professional or the Illinois 529 program directly about potential recapture before doing any rollovers, especially if you've claimed significant deductions over the years.

Great questions about the timing! From what I understand, the 15-year requirement applies to when the account was first opened, not to individual contributions. So if you opened your daughter's 529 in 2020, the entire account becomes eligible for rollovers in 2035, regardless of when you made specific contributions after that. You're absolutely right about the timing strategy being important. With the $7,000 annual Roth limit and the requirement that rollovers can't exceed the beneficiary's earned income for that year, you'd definitely want to spread this out. I'm thinking the sweet spot might be when your child is in college or just after graduation - they'd likely have some earned income from part-time work or early career jobs, but might not be maxing out their Roth contributions yet. One thing I'm wondering about is whether it makes sense to prioritize rolling over the growth portions first, since those would have the most potential for continued tax-free growth in the Roth IRA. Has anyone seen guidance on whether you can specify which portions of the 529 to roll over?