Providers of IRAs and 529 plans may need to add additional programming to their systems and change distribution and rollover forms to properly record the distribution and the source of the rollover. ![]() Firms offering IRAs and/or 529 plans will need to provide guidance to existing and prospective accountholders as well as marketing material to tout this new feature.Ĭurrently, however, IRA and 529 plan recordkeeping systems do not include a 529-to-Roth IRA rollover option. This provision not only solves the problem of what to do with excess assets in a 529 plan without incurring additional taxation, but it can also create a Roth IRA backdoor funding vehicle while minors do not have earned income or for 529 beneficiaries whose income exceeds the Roth IRA income cap. Note that contributions made in the previous five years are not eligible for rollover to an IRA. Rollovers are limited to the Roth IRA contribution ceiling in effect for the year and are subject to a lifetime limit of $35,000. Rollover Of Excess 529 Assets To A Roth IRAīeginning in 2024, the beneficiary of a 529 account will be eligible to roll over assets from that account to a Roth IRA if the account has been open for at least 15 years. Additionally, plan sponsors and IRA custodians, who typically sign one master document to authorize the establishment of automatic rollover IRA accounts for that plan’s participants, will need to review and possibly amend the agreement to make sure it covers the new $7,000 limit. Recordkeeping systems that process such rollovers need to be reprogrammed for the new dollar limit. Retirement plan document providers may need to review plan documents to determine if a plan amendment to incorporate the new $7,000 limit is required for plan sponsors that choose to use the increased limit. While this provision’s effective date is 8 months away, plan sponsors, retirement plan recordkeepers, IRA custodians and providers need to act now to be prepared. Employers are not required to offer this option to SEP and SIMPLE IRA participants, but if they do, they must obtain elections from the participants who want Roth contributions. ![]() The faster the IRS issues guidance, the quicker providers will be able to offer this valuable benefit. However, since SEP IRAs are typically funded in the next calendar year near the tax-filing deadline, SEP Roth contributions may be available from many providers. Because of the uncertainty, I find it unlikely that SIMPLE Roth contributions will be available in 2023. (The IRS has yet to issue IRS 5304-SEP, 5304-SIMPLE, 5305-SEP, and 5305-SIMPLE forms that address document requirements.) In addition, recordkeeping systems need to be reprogrammed for these account types prior to accepting contributions and making distributions. ![]() Questions remain regarding which documents or document amendments will be needed. While this is an interesting option for retirement savers, since it creates new IRA types, I believe firms are not ready yet to offer this provision. The new law allows firms to offer a SEP and SIMPLE Roth Contribution type starting in 2023.
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