I’ve heard this is a good way to set your kid up for success and take advantage of compounding. One of the parts I always get caught up on when looking into it, is that your kid needs some form of taxable income, and whatever they contribute, you can match it.
If you have a child that is just a couple years old, how do you accomplish this? I can’t just say I pay her $3000 a year for picking a book to read each night…or can I?
Also, specifically for this 35k lifetime transfer from 529, the IRS has yet to do rulemaking where they decide/declare whether this 35k is subject to the earned income requirement. I doubt they break with tradition and exempt it, but if they did, you could just contribute from your child’s birth the IRS maximum. Even still, if your kid gets odd jobs in the summer as a teen, work study in college, or whenever they get their first job you could transfer up to their total annual earnings from 529 to a Roth for them. Even doing $6500 for a few years in early 20s would be an unbelievable head start since most normal people can’t really get on their feet to start saving until mid-late 20s…or later as they have income but it’s not enough to also let them save.
Sincerely wish they had an income limit on this as it’s just a benefit to the mostly rich.