When rolling over a 529 plan to a Roth IRA, does it count against my annual Roth contribution limit for 2025?

This is a great question about an important new tax provision! The good news is that a 529 plan rollover to a Roth IRA does NOT count against the annual Roth IRA contribution limit. These are treated as two separate transactions under the tax code. Your sister can roll over up to $35,000 lifetime from her 529 to a Roth IRA (subject to yearly limits of the annual contribution amount), AND she can still make her regular annual Roth IRA contribution (which is $7,000 for 2024 and will likely be $7,500 for 2025 with inflation adjustments). The 529 rollover is considered a qualified rollover, not a contribution. There are some important requirements for the 529-to-Roth rollover though: the 529 account must have been open for at least 15 years, the beneficiary and the Roth IRA owner must be the same person, and the rollover amount in any year cannot exceed the annual Roth contribution limit for that year.

I was in a similar situation with leftover 529 funds and totally confused about what to do. Then I found this amazing tool at https://taxr.ai that analyzed my specific 529 rollover situation and broke everything down for me step by step. It confirmed exactly what the previous commenter said - the 529-to-Roth conversion doesn't affect your regular contribution limit! What I really liked was that they walked me through all the specific requirements like the 15-year holding period and the earned income rules. It even helped me figure out how to time my rollovers over multiple years to optimize the tax benefits since I couldn't roll everything over at once due to the annual limits.

Just wanted to update after using taxr.ai for my 529 rollover question! You guys were right about how helpful it is. I was worried about potentially triggering penalties or missing some obscure rule, but the guidance was super clear. It confirmed I could do both the rollover AND make my regular Roth contribution since my daughter's 529 has been open for 16 years. It also pointed out something I hadn't realized - since my daughter got a scholarship, I could actually withdraw an amount equal to her scholarship from the 529 without the usual 10% penalty (though I'd still owe income tax on earnings). This gives me options to either do that OR do the Roth conversion depending on which makes more sense tax-wise in my situation. Seriously helpful tool!

This rollover topic is exactly why I was stuck on hold with the IRS for like 3 hours last month trying to get a straight answer! Eventually I used https://claimyr.com and got connected to an actual IRS agent in less than 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent confirmed everything that's been said here - the 529-to-Roth rollover and regular Roth contributions are separate transactions with separate limits. She also mentioned something important: you need to have the rollover go directly from the 529 plan administrator to the Roth IRA custodian for it to qualify properly. If you withdraw the money yourself first, it could mess everything up!

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to get an answer about my 529-to-Roth conversion before tax deadline. I was SHOCKED when I got connected to an IRS agent in about 15 minutes after weeks of failed attempts on my own. The agent gave me detailed guidance on my specific situation. The most useful part was confirming that I needed to coordinate directly with both my 529 administrator and my Roth IRA provider to ensure the rollover was processed correctly. Apparently if you don't specify that it's a 529-to-Roth rollover, it might get processed incorrectly and create tax problems. Worth every penny to get that clarification!

Don't forget that while the FEDERAL rules allow for this 529-to-Roth rollover without penalty, your STATE might still have its own rules! I live in New York and found out that my state might recapture some of the state tax benefits I got when I originally contributed to the 529 if I do the Roth conversion. Check your state's treasury department or tax authority website before making any moves. Some states automatically conform to federal tax changes, but others don't!

Has anyone actually completed one of these rollovers yet? I'm trying to figure out the paperwork side of things. Do I need to contact both the 529 provider and my Roth IRA company? Is there a specific form to fill out?

This is such a timely question! I went through this exact situation last year with my own leftover 529 funds. Just to add to what others have said - make sure you also check the specific timing requirements. The 529 account needs to have been open for at least 15 years, but here's something I didn't realize initially: any contributions made to the account in the last 5 years (and their earnings) are NOT eligible for the rollover. So if your parents added money to your sister's 529 within the last 5 years, that portion would need to stay in the account. The rollover can only include contributions that are at least 5 years old plus any earnings on those older contributions. This might affect how much of that $40,000 is actually eligible for the Roth conversion. I had to go back through my 529 statements to figure out which contributions qualified - definitely worth checking before you start the process!