What happens to excess contributions to 529-Plan
Under the new SECURE 2.0 Act passed recently, your excess contributions to 529-Plan can be transferred to Roth IRA for your beneficiaries of 529-Plan. Below is a summary of the rules effective 2024:
• The money must be moved directly from 529 plan to Roth IRA
• The Roth IRA receiving the funds must be in the name of the beneficiary of the 529 plan
• 529 contributions and earnings go into Roth IRA in like- kind
• Beneficiary must have “compensation” - children's earning years
• The 529 plan must have been maintained for 15 years or longer
• Any contributions to the 529 plan within the last 5 years (and the earnings on those contributions) are ineligible to be moved to a Roth IRA
• Subject to IRA contribution limit, less any 'regular' traditional IRA or Roth IRA contributions, annually ($6,500 in 2023)
Also, the beneficiary cannot contribute to Roth IRA in the.year of transfer? Need clarification.
• Maximum lifetime transfer to beneficiary is $35,000 (current limit)
(source - Webinar by Jeff Levine, @cpaplanner). Formatting my own.
The implication is that you have another channel for wealth transfer to the next generation.