Can I Rollover My 529 Money Into My IRA?
529 College savings plans help you save money for your child's college education. A 529 is a state sponsored and managed plan. If your child does not use the funds for a college education, you may wish to retain any unused funds and put them toward your own retirement. You'll need to know how this is done.
Process
The process for moving funds from a 529 plan to an IRA involves liquidating the 529 plan. Funds cannot be directly rolled into an IRA without paying taxes. Instead you must contact your 529 plan administrator. Request a distribution form. Fill out the form, and include your 529 account number and the amount you want to withdraw. If you are closing the account, you must indicate this on the form. Sign and return the form. You will receive the balance of your 529 plan within a few weeks. Then, you must deposit the money into your IRA. You must follow your IRA's contribution guidelines. This means that you cannot contribute more than $5,000 per year (if you're under age 50), or $6,000 per year (if you are 50 years or older) to the IRA.
Significance
The significance of moving money from your 529 plan to your IRA is that the transfer is not a normal transfer or rollover. 529 plans are state regulated college savings plans, while IRAs are federally regulated retirement plans. These plans have two separate and distinct purposes.
Benefit
The benefit of moving money from a 529 plan to an IRA is that you retain some of the money in the 529 plan and may use it for your own retirement. If your children do not use the money in the 529 plan, you don't lose that money.
Disadvantage
The disadvantage to moving money from a 529 plan to an IRA is that there is no way to make a tax-free transfer from a 529 to an IRA. This means that moving money from a 529 plan to an IRA is an inefficient move, tax-wise. You may lose a substantial amount of money in taxes during the move, giving you less money to invest in your IRA.
Considerations
In the future, you may want to consider using a traditional or Roth IRA to help your children save money for college. A Roth IRA, especially, allows you to remove contributions prior to removing investment earnings. You may remove these contributions anytime before 59 1/2 without a penalty and without paying any tax. If your child never goes to college, you can simply leave the money in the IRA. This eliminates the need for a separate IRA account designed only for college savings.
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