Overcontribution to Roth IRA via 529 rollover

[regular guy]

I have a 529 in which I am the beneficiary and wanted to take advantage of the new rules that allow a rollover from my 529 to my Roth Ira. Unfortunately, it appeared the 529 provider had lost my initial application, so I submitted it a second time and they both got processed. The first check was sent to Vanguard at the end of January and the second check was sent yesterday resulting in an overcontribution for 2025 of $8,000.00 (I had rolled over $8,000.00 the year before for 2024 without a problem). I spoke with the 529 provider twice, and they said that they were unable to cancel the check even though it has not cleared yet. I wanted to see if anyone had any ideas to mitigate the tax consequence and had a couple questions.

1) I believe I have two tax issues. The first is that I made a non-qualified withdrawal from the 529 so I believe that I will have to pay taxes on the 529 earnings and the 10% penalty for using it for a nonqualifying expense. Is there a way to avoid the 529 penalty and tax perhaps by leaving it at Vanguard and then paying the excess contribution tax?

2) I read somewhere that I could apply the excess contribution to next year's contribution limit and pay the 6% excess contribution tax but I don't know if that applies to 529 rollovers to a Roth? Does the penalty still apply as long as I don't make any other contributions next year if its a rollover and not a contribution?

I guess my question ultimately comes down to what is the best way to reduce the taxes and penalties and is the best option just to withdraw the excess contribution and have it sent to me? I would prefer to keep it in the Roth as I cannot contribute directly but if the best way to minimize the tax is to just withdraw it that's fine. For what it's worth, I am 58 so I cannot take withdrawals from an IRA yet.

Thanks for any advice you can offer,

[toddthebod]

I have a 529 in which I am the beneficiary and wanted to take advantage of the new rules that allow a rollover from my 529 to my Roth Ira. Unfortunately, it appeared the 529 provider had lost my initial application, so I submitted it a second time and they both got processed. The first check was sent to Vanguard at the end of January and the second check was sent yesterday resulting in an overcontribution for 2025 of $8,000.00 (I had rolled over $8,000.00 the year before for 2024 without a problem). I spoke with the 529 provider twice, and they said that they were unable to cancel the check even though it has not cleared yet. I wanted to see if anyone had any ideas to mitigate the tax consequence and had a couple questions.

1) I believe I have two tax issues. The first is that I made a non-qualified withdrawal from the 529 so I believe that I will have to pay taxes on the 529 earnings and the 10% penalty for using it for a nonqualifying expense. Is there a way to avoid the 529 penalty and tax perhaps by leaving it at Vanguard and then paying the excess contribution tax?

2) I read somewhere that I could apply the excess contribution to next year's contribution limit and pay the 6% excess contribution tax but I don't know if that applies to 529 rollovers to a Roth? Does the penalty still apply as long as I don't make any other contributions next year if its a rollover and not a contribution?

I guess my question ultimately comes down to what is the best way to reduce the taxes and penalties and is the best option just to withdraw the excess contribution and have it sent to me? I would prefer to keep it in the Roth as I cannot contribute directly but if the best way to minimize the tax is to just withdraw it that's fine. For what it's worth, I am 58 so I cannot take withdrawals from an IRA yet.

Thanks for any advice you can offer,

Regarding leaving the money alone, which I do not think is the ideal solution:
There is no annual limit in section 529 for the amount that can be rolled over to Roth, so I do not think if you leave it until next year that you will be subject to any penalties or taxes from the 529 part. You would instead have to file 5329 and pay the 6% excise tax with your 2025 return, then contribute $8,000 less than the 2026 limit (e.g., if the limit is increased to $8,500, you can contribute only $500). On your 2026 return, you'll file form 5329 once again where you will document how you had room under the limit to absorb the contribution. The total extra taxes would be $480.

The actual ideal solution:
Send $8,000 to the 529 as an indirect rollover within 60 days of yesterday. Request a return of excess contributions from your Roth before April 15, 2026 (but ideally as soon as the rollover is deposited.)

[regular guy]

Thank you for taking the time to write such a detailed response. I really appreciate it.

[bombcar]

Can you send the check to another 529 provider for now? I have no idea if that makes the problem worse.