One of the most powerful tools for building long-term wealth is the magic of compound returns. The earlier you start, the more time your money has to grow, and when paired with tax-free advantages, the results can be life-changing. For parents, this creates an incredible opportunity to set their children on the path to financial security from a young age. Imagine watching a modest initial investment blossom over the years, growing without the burden of taxes—this is the core benefit of starting to invest early for your child’s future.
The Junior Roth IRA simplifies this by allowing parents to not only build an investment account but grow the funds tax-free, unlocked by the new flexibility introduced by the Secure Act 2.0. This allows families to have more options than ever to plan for their child’s future—not just for education, but beyond. Whether for college, a first home, or retirement, starting early ensures that your contributions have decades to compound and grow, setting them up for financial success from the start.
The Junior Roth IRA service includes a general investing account, a 529 plan, and eventually, a Roth IRA. The legislation that powers the Junior Roth IRA is IRS Publication 970, which covers the 529 to Roth IRA rollover option. This is a fairly new change as of 2024, and because of that, not all states have fully embraced the full potential of this option. The good news is, no matter where you live, these rollovers have been approved at the federal level, with many states already considering them a qualified distribution. While many states already recognize this rollover as a qualified distribution under the Secure Act 2.0, some states have not adopted these rules yet, and in some other states, a decision is still pending. We expect more states to follow in the coming years, though we can’t guarantee if or when that may happen.
Getting individual tax advice for your situation is always best. That said, to help you understand what may apply to you, we’ve put together a handy list of how each state is currently handling the 529 to Roth IRA rollover. We prepared this list to the best of our knowledge, without being tax experts. As a heads-up, this list can change over time, and we will only be able to update it periodically. Some potential good news for those who live in states that have not yet adopted the 529 to Roth IRA rollover as a qualified distribution — the earliest any rollover could happen is 15 years from now, giving states plenty of time to catch up. Plus, we believe that opening a 529 plan on its own is, in many cases, a wise financial decision.
529 Distributions to Roth IRAs a Qualified Expense for State Income Tax Purposes: 35 states
- Alabama
- Alaska (No state income tax)
- Arizona
- Delaware
- Florida (No state income tax)
- Georgia
- Hawaii
- Iowa
- Idaho
- Illinois
- Kansas
- Kentucky
- Maryland
- Maine
- Nebraska
- New Mexico
- Nevada (No state income tax)
- New Hampshire (No state income tax)
- New York
- North Carolina
- North Dakota
- Oklahoma
- Ohio
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota (No state income tax)
- Tennessee (No state income tax)
- Texas (No state income tax)
- Virginia
- Washington (Note: No state income tax)
- West Virginia
- Wisconsin
- Wyoming (No state income tax)
529 Distributions to Roth IRAs are NOT a Qualified Expense for state income tax purposes: 9 jurisdictions
(8 states plus District of Columbia)
- California (also subject to additional 2.5% California tax)
- District of Columbia
- Indiana
- Massachusetts
- Michigan
- Minnesota
- Montana
- Utah
- Vermont
Decision Pending: 7 States
- Arkansas
- Colorado
- Connecticut
- Louisiana
- Mississippi
- Missouri
- New Jersey
Last Updated: October 16, 2024
Disclaimer: Readers should consult with a qualified tax professional before making a 529 distribution to a Roth IRA. Also, we suggest that you read IRS Publications relating to this transaction such as IRS Publication 970.
Image from Freepik
