Yes, but it requires several steps and might take 15 years.
To roll 529 funds into a Roth, three important things need to be true:
- The listed beneficiary of the 529 needs to be the same as the owner of the Roth
- The beneficiary of the 529 needs to have been the beneficiary for at least 15 years
- The specific funds being transferred need to have been in the 529 for at least 5 years
So practically speaking, for most parents considering this, it makes more sense to prioritize rolling your child’s 529 funds into their Roth rather than your own.
How do I work around this?
There are two ways to cleanly transfer your child’s 529 funds into your Roth:
- Transfer any of the 529 funds you want to roll over into your your own 529. Wait 15 years and then do the Roth rollover
- Make yourself the beneficiary of your child’s 529 account. Wait 15 years and then do the Roth rollover.
In either situation you’ll need to make sure you qualify for all the Rollover requirements.
Beware of “tax hacks” for rolling your child’s 529 funds into your own Roth
Like any tax rule, there are lots of “hacks” online for getting around these requirements. One of the most popular ones I’ve seen is the following:
- Open a 529 with yourself listed as the beneficiary when your kids are still young.
- Once it’s been open for 15 years, you transfer funds from your child’s 529 into your account.
- Your then immediately roll those funds over to your Roth.
For example, let’s say your child is 7 years old today and has a 529 set up for college already. You want to have the flexibility to move any of their excess 529 funds into your Roth once they finish college.
You open a 529 account with yourself listed as the beneficiary today so 15 years from now when your child is 22 you’d pass the 15 year rule.
The main argument here is that technically your 529 account has existed for 15 years and checks the 15 year requirement box.
Hacks like this exist because the IRS hasn’t specified whether this is allowed. But we feel it’s always better to stick to the spirit of a tax rule rather. The IRS has a tendency to suddenly start going after people who use loopholes to work around tax or account requirements.
Use tax hacks at your own risk.
If you liked this article…
Check out some of our other posts on education and child-centric financial planning:
Our firm specializes in working with young families. Reach out to me at my email below if you want someone to help you build the financial strategies to fit the life you want for your family.
Nathan
Founder & Lead Advisor
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Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.