Transferring leftover 529 funds to a Roth IRA
What is the proper procedure to have funds moved from a 529 college savings account to a Roth IRA? My daughter has leftover funds in her 529 account that was opened by her grandmother when she was born. Her grandmother is the custodian of the account, but my daughter is the beneficiary of the funds that she used for her college education. When her grandmother contacted Morgan Stanley, who manages the 529, and asked for the funds to be transferred to my daughter’s Roth IRA at Schwab, they insisted that the check needs to be made out to my daughter rather than sending it directly to Schwab. Is this correct? It seems that there could be potential tax implications with this scenario. The 529 account meets all of the appropriate conditions for having the remaining funds be transferred to my daughter’s Roth IRA, so I’m hoping we can have the process completed correctly. Thank you for your help with this.
Terry Says
This article from SavingforCollege.com has the latest on the rules for this kind of transfer.
https://www.savingforcollege.com/article/roll-over-529-plan-funds-to-a-roth-ira
If you read carefully, the article states that this must be done as a DIRECT TRUSTEE TO TRUSTEE transfer!
Show this to Morgan Stanley. And if you don’t get satisfaction, please write back to me. Give me the names/phone numbers of the people who gave you the wrong information.
