If you set up a 529 education plan for your children or grandchildren that is no longer needed for education expenses, there is a new game in town. A law that went into effect this year permits 529 money to be rolled into a Roth IRA. That is, you can have money that you don't want to keep in the 529 transferred into a Roth IRA without triggering an income tax (or penalty) on the withdrawal from the 529. Of course, there are strings and limits.

The 529 Roth IRA rollover is new for 2024, enacted as part of the SECURE 2.0 Act (signed into law at the end of 2022 --tinyurl.com/5ehrjeyj). We haven't seen any IRS guidance as of yet, so some questions will remain unanswered until that happens. For now, the best resource is the statute itself.

The act outlines six key points when it comes to making this type of conversion:

1. The 529 account must have been opened for 15 years before the rollover can be made. (Note: The statute does not state that the 15-year period is NOT reset by a 529-to-529 rollover or a change in beneficiaries. Will the 15-year count have to start over if there is a 529-to-529 rollover or a beneficiary change?)

2. No 529 fund contributions (or the earnings for those contributions) for the past five years can be rolled over to the Roth IRA. (Note: Tracking may be an issue. "529 Plans are not required under existing law to track the information necessary to determine what portion of earnings in the account are attributable to contributions made five years or more prior to the date of distribution," states a letter sent to the IRS by the Nebraska assistant state treasurer on behalf of the College Savings Plans Network -- tinyurl.com/59yrmyxv.)

3. The rollover must be done through a direct trustee-to-trustee transfer from the 529 account to a Roth IRA that is for the designated beneficiary of the 529 account.

4. There is a maximum yearly amount that can be rolled over. For 2024, the amount is $7,000, which is the current Roth contribution limit. However, the amount is reduced if the beneficiary himself made contributions to another IRA in 2024.

5. The beneficiary is not subject to an income limitation, in contrast to a contribution an individual can make on his own into a Roth IRA. (This is different from the general rules for a Roth IRA. Under those rules, for example, a single person who has a modified adjusted gross income of $161,000 or more in 2024 cannot contribute to a Roth IRA -- tinyurl.com/txftjz2s.)

6. There is also an aggregate limit of $35,000 total that can be rolled over from the 529 to the Roth IRA.

At this time, it is unclear whether there is an earned income requirement that applies to Roth contributions. That is, if the beneficiary did not earn $7,000 in 2024, can he roll over $7,000 from the 529 to the Roth? See Fidelity's "How unused 529 assets can help with retirement planning" (tinyurl.com/36cvrcws).

As mentioned earlier, the IRS has not issued official guidance or regulations related to the new 529 option, according to an IRS spokesperson.

However, the IRS has noted on its "Instructions for Forms 1099-R and 5498 (2024)" webpage that the rollovers "are reported on Form 5498 as Roth IRA contributions and not as rollover contributions" (tinyurl.com/2chntkj4).

If you are considering a 529 rollover, you will need a form from the trustee of your 529 account. You can see an example of a Fidelity Investments form for a 529 account transfer to an account outside the Fidelity system at tinyurl.com/3vpadh5v.

The form includes a cautionary paragraph that is worth noting: "It is your responsibility to ensure that your withdrawals comply with IRS requirements. Non-qualified withdrawals could trigger IRS fees or penalties. At the end of each tax year, Fidelity will send a 1099-Q to the IRS, and to the participant or beneficiary, reporting any withdrawals. You may want to consult a tax advisor."

For further reading, look for the upcoming 2024 IRS Publication 970; see Chapter 7. Another resource is The Tax Adviser article "A retirement savings head start: 529-to-Roth rollovers" (tinyurl.com/4wmdddca).

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Qualified charitable distributions (QCDs) don't usually come up in conversations with family members or friends, and I haven't come across a reality show that incorporates QCDs into the average older person's daily life. ("Dancing With QCD Stars"?)

We've talked about them recently, but here are some additional things to think about.

In order to really understand why QCDs might be a reality in most older IRA owners' lives, consider this simple premise: Do you want to donate to charity? Do you have an IRA in the RMD (required minimum distribution) phase? Do you want to avoid paying taxes on RMDs?

If that's you, think about turning your RMD (or part of it) into a QCD and avoid paying taxes on the portion that goes to charity as a QCD. You have to want to donate to charity for the QCD to make sense. Tax savings alone won't do the trick, since you're saving taxes on the amount you give away.

If you want to do the numbers, try the AARP tax calculator at tinyurl.com/yc25wc2h.

Of course, there are rules to follow to make the donation to charity a tax-free withdrawal of IRA money:

1. You need to be age 70 1/2 or older.

2. The money that goes to charity needs to be transferred directly by the IRA custodian (not you) to the charity.

3. The money needs to be received by the charity before the end of the year.

4. The charity needs to be a "qualified" charity. (Use the IRS Tax Exempt Organization Search Tool at tinyurl.com/497um8xp to confirm if it is.)

These are the general rules that must be followed to avoid being taxed on the IRA withdrawal, and you can find them online on the IRS website at tinyurl.com/yc2sjjv3.

There's one other rule you should be aware of -- the "first dollar rule," which is found in Treasury Regulation 1.402(c)-2, Q&A-7 (tinyurl.com/me4hw2ep). This regulation states that "if a minimum distribution is required for a calendar year, the amounts distributed during that calendar year are treated as required minimum distributions under section 401(a)(9), to the extent that the total required minimum distribution under section 401(a)(9) for the calendar year has not been satisfied."

Thus, if the first distributions from your IRA in a calendar year in which there is an RMD (currently age 73) are QCDs, they will first be used to satisfy the RMD for that calendar year. And if you don't need your RMDs, this can be a method for donating to a charity (up to $105,000 in 2024) and avoiding taxes on the RMD.

The definition of a "charity" goes beyond more well-known names like the American Red Cross and the Salvation Army. For example, a college like the University of Central Florida provides information on its website for how to do a charitable distribution from an IRA, including a Letter of Intention form and the ability to search IRA custodians to request such a transfer (tinyurl.com/mrx3k845).

Another example, this time from the field of health care: The University of Kansas Health System, a nonprofit, academic medical center, provides information on how to donate using a QCD (tinyurl.com/3wz67y6u).

You can also donate through a QCD and get lifelong income back. It is known as a "split-interest entity," something I wrote about last year (if you would like a copy of that column, reach out to me at readers@juliejason.com). There are limits on the amount ($53,000 in 2024) and the frequency (you can only do one split-interest entity in a lifetime), so you'll want to explore the details and confirm that the charity of your choice offers this option.

A QCD allows you to manage your RMDs and support your charitable interests. If you are considering one for this year (30% of annual charitable giving occurs in December, according to the website Nonprofits Source -- tinyurl.com/37y37h84), be sure to take action as soon as possible so your gift will be processed by your IRA custodian before year-end. The best case for a QCD is someone who wants to benefit charity and is required to take mandatory withdrawals from his or her IRA, even small amounts.

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In a previous column, I discussed that the federal estate tax exemption is set to undergo a big change -- increasing the number of estates that will be taxable on a federal level -- after 2025, unless Congress acts to extend the current law.

Now that the presidential election is behind us, some believe that beginning in January, we will see movement to extend the exclusions that were originally adopted in the 2017 Tax Cuts and Jobs Act.

If Congress does not act before the end of 2025, the exclusion amount (the amount that passes to heirs free of federal estate taxes) is estimated to revert to roughly $7 million from its current level (the 2024 exemption is $13.61 million; the 2025 exemption is $13.99 million).

Law firms are talking with clients about being prepared in case there is a reversion to the lower exclusion amounts. If you are in the position of having a large estate, should you be thinking of taking action before the end of 2025?

Cummings & Lockwood LLC, a law firm based in Connecticut and Florida, offered the following examples of individuals who should talk with their lawyers about possibly making gifts to reduce their estates. I'm quoting from the firm's 2024 Private Clients Annual Update (tinyurl.com/3wr3f3bw):

-- "Clients who are certain they will never need the gifted assets and can maintain financial independence without those assets and the income they may generate.

-- "Clients who are confident the gifted property will appreciate in value before death.

-- "Clients who believe that federal tax exemptions will be reduced below the current level for a prolonged period.

-- "Clients who are willing to gift the entirety of their exemption now, or at least the majority of it. Because the exemptions may be decreased later, you must give enough now to use what might be taken away."

When considering the type of gift, Bank of America Private Bank, formerly U.S. Trust, offered:

"The simplest strategy is a direct gift of cash, securities or other assets with a value up to the lifetime exemption. Keep in mind that you have other avenues for tax-advantaged gifting beyond that. You can, for instance, use the annual gift tax exclusion -- $18,000 in 2024, $36,000 for couples -- to make yearly gifts to as many people as you like." See "Could potential tax law changes have an impact on your estate?" (tinyurl.com/yc6wy79h).

Elizabeth Falkoff, Esq., a principal with Cummings & Lockwood, adds, "Look at your assets -- what are you comfortable giving away and living without? What assets have the opportunity for the most growth potential?"

Savings in taxes can be significant. Law firm Husch Blackwell LLP, in a Thought Leadership article, offered an example of the possible difference in estate taxes (tinyurl.com/u2sv3w76):

"Imagine you have a $20,000,000 estate in 2024 and utilize the $13,610,000 exemption to its fullest. If you were to pass away in 2024, your taxable estate at death would be $6,390,000. With the estate tax rate at 40%, your estate will have a tax bill of $2,556,000. The portion of your estate passing to your loved ones would be $17,444,000.

"However, if you didn't take advantage of the exemption in 2024 and waited until 2026 when the estimated exemption drops to $7,000,000, you would have a taxable estate at death of $13,000,000. By using the same 40% tax rate, your estate would have a tax bill of $5,200,000. Therefore, the portion of your estate passing to your loved ones would only be $14,800,000."

Remembering the big picture is always a good strategic approach. "Evaluate any proposed transfer against all of your financial goals. Is this a gift that you would make regardless of tax rules?" suggests Northern Trust's "Are You Prepared for Sunsetting Estate Tax Exemptions?" (tinyurl.com/49tskp8j).

As with many big picture exercises, this type of planning does have a deadline. Meet with your lawyer soon to explore possibilities.

If you would like to attend a discussion forum on this topic in Greenwich, Connecticut, with Elizabeth Falkoff of Cummings & Lockwood, please contact me for details at readers@juliejason.com.

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