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Rolling 529 Funds Into Roth IRAs
Tax season is a great time for advisors to meet with clients about making last-minute contributions to tax-advantaged accounts.
Happy Sunday everyone, and welcome to the inaugural financial advisor newsletter from Benzinga. The goal of this newsletter is to make you better at your job. How? By providing super high-quality content directly to your inbox every Sunday to help you get prepared for the week ahead.
For example, we’re talking about rolling 529 funds into Roth IRAs this week. With the tax deadline less than a month away, advisors should contact clients soon to avoid missing the 2023 contribution window.
In addition to this industry chatter, we’ve also got a market review and preview below. We want to provide you with talking points for clients, timely reminders, and market context to make you the smartest and most proactive advisor in the room.
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INDUSTRY CHATTER
Tax season is a great time for advisors to meet with clients about making last-minute contributions to tax-advantaged accounts.
With the Secure 2.0 Act going into effect, advisors can remind clients about the new rules for 529 plans. College savings accounts are designed to help parents and students pay for tuition, housing, and books. Now, Secure 2.0 allows 529 funds to be used for Roth IRA contributions as well.
The Stipulations
Advisors need to be aware of all the stipulations involved with rolling a 529 into a Roth IRA. The funds cannot simply be contributed in one lump sum. Rollovers from 529 to Roth IRA cannot be more than the annual maximum IRA contribution limit per year. For 2023, the limit is $6,500. Contributions made after December 31, 2023, to before April 15th, 2024 can be counted as 2023 contributions.
The 529 plan must be under the same beneficiary’s name for at least 15 years before rolling over funds. Money placed into the 529 in the last five years isn’t permitted to be rolled over.
Contributions limits for IRAs include rollovers and any traditional contributions, so if an account holder contributes to their IRA or Roth IRA, it will limit the amount that can be rolled from their 529. For example, if the beneficiary contributed $2,000 towards their Roth IRA in 2023, a maximum of $4,500 could be rolled from the 529 for that year.
The beneficiary also needs to have at least as much earned income as they are planning to roll over from their 529 to their IRA. And there’s a $35,000 lifetime limit for rollover funds per beneficiary.
Broadening the Benefits of 529s
Within these boundaries, the legislation from Secure 2.0 broadens the use case of 529 plans. Advisors can now tell parents that even if a child receives a full scholarship, their 529 can be a powerful tool to kick-start their retirement savings. Traditionally, when not used on qualified educational purchases, 529 funds have been stuck with taxes and penalties as they are withdrawn for other uses.
With the tax deadline less than a month away, advisors should reach out to clients soon to avoid missing the 2023 contribution window.
MARKET RECAP
Inflation reports unveiled in the week preceding the Fed meeting brought unwelcome news to investors. Price pressures surged more than expected in February, creating a headache for Federal Reserve Chair Jerome Powell, who had been pushing for greater confidence regarding the disinflationary trend before contemplating interest rate cuts.
Stocks flipped to the red after Thursday's producer inflation data confirmed concerns that emerged two days earlier in the consumer inflation report.
As market participants dialed back rate-cut bets, risk sentiment faded with crypto, and Bitcoin dragged to losses. Meanwhile, commodities outperformed, with gold holding near all-time highs and oil surging above $80 a barrel.
Powell’s Rate Dilemma
As inflation reasserts its presence, Fed Chair Powell faces pressure on the path to cut interest rates. Expert opinions on rate directions are now diverging, creating an uncertain policy scenario.
AI Stocks Exit?
Investors pulling out of AI tech stocks like NVIDIA Corp., Advanced Micro Devices Inc., and Microsoft Corp. may be acting prematurely, suggests Light Street Capital’s Glen Kacher. Kacher advises that we’re early in the AI investment cycle, making current valuations reasonable and highlights the potential growth of select “AI Five” companies.
Cruising’s Rising Tide
Goldman Sachs adopts a bullish outlook on the cruise sector, favoring Royal Caribbean Cruises Ltd. and Carnival Corp. due to industry shifts and expected pricing tailwinds.
Congressman’s Boeing Sale
A congressman’s sale of Boeing Co. stock just before a Department of Justice investigation announcement raises concerns over potential insider trading. The trade’s timing, especially given his committee position, has sparked calls for further investigation into whether non-public information influenced the decision.
TikTok Bill Advances
The U.S. House’s approval of a bill targeting TikTok has left many influencers anxious, given the app’s vast American user base of 150 million. The legislation’s progression underscored growing concerns over the app’s Chinese ownership and data security implications.
Musk Critiques TikTok Bill
Elon Musk voiced concerns about the proposed TikTok bill. He believed the bill was overly broad and susceptible to future misuse, reflecting growing debates over the app’s fate in the U.S. amid speculation of forced sales or bans.
Cannabis Stocks Surge
Speculation around the DEA’s impending rescheduling of cannabis to Schedule III fueled a significant rally in cannabis stocks on Friday. This move, anticipated to foster industry growth, sparked widespread optimism and strategic positioning among investors.
Click here for the full calendar of economic data and earnings reports.
WHAT THE PROS ARE WATCHING
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THE WEEK AHEAD
Economic Data
Monday: Home builder confidence index
Tuesday: Housing starts, Building permits
Wednesday: FOMC interest-rate decision, Fed Chair Powell press conference
Thursday: Initial jobless claims, Philadelphia Fed manufacturing survey, Existing home sales
Friday: None
Earnings
Monday: Sonim Technologies, Peraso, Zepp Health
Tuesday: AllianceBernstein, Codex DNA
Wednesday: Five Below, Chewy, Lifewaway Foods
Thursday: FedEx
Friday: AstroNova
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