Roth IRA from 529
I have a 529 plan that I established for my son. He completed his undergraduate and Master’s degree and he decided to not pursue further degrees. I asked Bright Directions to establish a Roth IRA. He already buys $7000 of Roth IRA’s each year from Vanguard. Is there a problem with me establishing a Roth for my son from Bright Directions in addition to the IRA’s he buys from Vanguard? He has 5 more years before turning 30 years old.
In addition the above question, there is other money left over in his 529 account that I want to gift to him (I know that I will need to pay taxes on that money when I withdraw the balance— approximately $28,000). I believe there is an $18,000 limit for gifts for each parent per year to give to children (yes/no?). Is there any problem with me buying the 529’s from Bright Directions in the same year that my son buys Roths from Vanguard?
Thank you for helping.
Terry Says
Interesting question, so I had to do a little research. Nope, he can NOT contribute to both his own Roth, and utilize the provisions of the 529 Roth rollover in the same year! His limit, at his age, in 2025 will be $7,000. And that assumes he is earning at least $7,000. However, if he happens to earn more than the annual Roth income limit, he can still do the 529-to-Roth rollover.
The annual gift tax exclusion rises to $19,000 in 2025, so if you file a joint return with your spouse you can each give that amount to your son — from any source. But to take maximum tax advantage of this Roth 529 Conversion, I would suggest leaving the balance in the account, where it is growing tax-free, and using the annual conversion (up to a $35,000 max) to move the money out.
Who knows that in 5 years you might have a grandchild on the way, and want to keep the balance in the account growing for your future grandchild!
