Episode summary
People Without Kids Are Hacking 529 Accounts for a Roth Backdoor | Bloomberg Businessweek
Bloomberg Businessweek Daily
· · 8 min · Hosts: Carol Massar, Tim Stenovec · Guests: Sarah Foster
Summary
The discussion focuses on how 529 college savings plans have evolved from education-only accounts into a potential retirement-planning tool. Since Congress changed the rules in 2022, up to $35,000 of unused 529 money can be rolled into a Roth IRA, and that has prompted some people without children to open accounts for themselves as a kind of Roth backdoor.
Sarah Foster says the strategy appeals to people who are already maxing out a 401k and Roth IRA and want another tax-advantaged place to stash money. The tradeoff is that the rollover still follows annual Roth IRA contribution limits, now $7,500, and the process can be complicated because the 529 beneficiary and Roth IRA beneficiary must match.
The conversation also notes other uses for 529 funds, including professional certifications, private schooling, and some first-time homebuyer withdrawals after the Roth has been open for five years. Foster argues that while the loophole can help families and even childless savers, it does not solve America’s broader retirement shortfall and remains vulnerable to future changes in tax law.
Key takeaways
- Sarah Foster says the 2022 rule change lets up to $35,000 from a 529 be rolled into a Roth IRA, creating a new planning strategy for savers.
- The tactic mainly appeals to people who have already maxed out a 401k and Roth IRA and are looking for another way to save tax-advantaged money.
- Annual Roth IRA contribution limits still apply, so the rollover has to be staged over time rather than taken all at once.
- Advisers warn that the strategy is complicated and carries policy risk because Congress can still change the rules.
- Foster says the workaround may help individual savers but does not fix the broader U.S. retirement savings gap.
Notable quotes
“Congress now allows up to $35,000 to be transferred from a 529 into a Roth IRA”
“They're squeezing every last dollar. So, they're turning to the 529 plan, not really as a way to save for education, but as a way to kind of, you know, hedge against a changing job market”
“You can open it and you can set yourself as the beneficiary”
“there's a penalty that you would pay if you use it for something other than education”
How the episode opens
Bloomberg Audio Studios podcasts, radio, news. — You're listening to Bloomberg Business Week with Carol Masser and Tim Stenc on Bloomberg Radio. — Okay, so we were just talking about 529 plans, right? You have one for your kids, you open them up, it's going to help pay for college.
Yeah. Should I send a link out so people can donate to it? Should I do that? — Exactly. You don't do that at birthdays. That's the thing to do at birthdays. Send a link. But there's the rules have changed a little bit. So now families who who don't have kids um they're starting to open their because there's a little kind of I guess you could say a Roth back door to it. Let's explain.
Sounds like we need an explanation. — Yes, we need an explanation for it. So let's go right now to Sarah Foster. She's Bloomberg News personal finance reporter. This article was just fascinating to me because I personally I have one for each of my kids. But then sometimes you may have money left over my send it to me. Yeah. No.
Okay. — There's a better place to put it. — So, if my son, let's say, joined National Guard, so I switch it to my daughter, then she decides to join ROC. They're going to pay for the school. So, it's this money left over. Um, and then you can find out you can transfer to this Roth IRA, but families are starting to do this who don't have kids. Explain the reason why. It's got to be retirement.
It's so fascinating. It's kind of one of those like maximization stories. It's people who've, you know, they've already looked at maxing out other accounts like their 401k, their Roth IRA.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- 529 rollover
- roth backdoor
- college savings
- retirement account rules
- tax and estate planning
Companies and tickers mentioned
- Fidelity
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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