Can I convert an IRA account to a 529 college savings account without tax penalty?
I have an IRA that I opened after I closed out an old 401(k) but now I would like to use that money to open some 529 accounts for my kids. Can I convert the IRA to a 529 or will I have to pay a big tax penalty for cashing out first?
this is a traditional IRA and NOT a Roth IRA
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August 21st, 2010 at 8:24 am
I believe those are beasts of different species.
However, you can keep the money in your IRA and withdraw it before you turn 59.5 and use the money for tuition WITHOUT the 10% penalty. However, any withdrawals will be taxed at your regular tax rate.
If you dump money OUT of your IRA, then open a 529, you’ll be taxed on the IRA money at your normal tax rates, PLUS the 10% penalty. However, once it is in 529 plan, later withdrawals for education purposes are 100% tax free (big difference, versus tax-deferred).
WealhtBuilder
August 21st, 2010 at 9:14 am
no