Considering rolling over unused Virginia529 funds to a Roth IRA? Here are some things to know before completing a Roth IRA Rollover Request.
Roth IRA rollovers are for the benefit of your student. That means the student (beneficiary) currently on your Virginia529 account must be the Roth IRA account owner. You may change beneficiaries; however, you cannot submit the rollover request to Virginia529 until the beneficiary change is completed.
Rollovers go directly to the Roth IRA provider. Viginia529 must send a check directly to the Roth IRA provider. You’ll be asked for the provider’s information on the request form. Ask your beneficiary for the provider’s full company name (so the check is made payable to the correct provider) and the mailing address (so the check is sent to the correct place).
The Roth IRA provider may require additional information. Before submitting the rollover request, the Roth IRA account owner should contact their provider to see if there are specific forms or special instructions needed from them.
Be aware of rollover and contribution rules. The amount eligible to be rolled over to a Roth IRA must have been in your 529 account for at least five (5) years. Rollovers are considered contributions to the Roth IRA and there are yearly contribution rules set by the IRS. Check with your beneficiary to make sure your rollover request won’t put them over their annual contribution limit. Finally, for all 529-to-Roth IRA rollovers, there is a $35,000 lifetime cap for the individual beneficiary, even if that beneficiary has more than one 529 account. That means your beneficiary cannot receive more than $35,000 from 529 rollovers.
Virginia529 account owners are responsible for meeting all requirements. As the Virginia529 account owner, you are responsible for determining the eligible rollover amounts, the age of the 529 accounts, and tracking any lifetime limits. You can access your account balance, review transactions or create custom statements through your online account (under Manage My Accounts).
The 529 account must be open for at least 15 years. While the IRS has not year provided final guidance on this issue, generally, the 529 industry believes that the 15-year period is calculated based on is the lifetime of the account – from the day you opened it, with whichever 529 program you opened it with. If you changed 529 administrators, if your account number changed due to an investment option change or other administrative reason, or if you changed beneficiaries (or plan to in the future), the 15-year period does not restart.
According to recent form updates from the IRS, a rollover from 529 account made after December 31, 2023 that is put into the Roth IRA by April 15, 2024 can be designated as a Roth IRA contribution for 2023. The Roth IRA account owner should indicate which tax year they should record the IRA contribution. Consult a tax advisor or financial professional for additional guidance.
If the IRS issues additional guidance surrounding Roth IRA rollovers and Secure 2.0 Act, Virginia529 will communicate that guidance on Virginia529.com and in the Invest529 Program Description.