Rolling Over 529 Funds to a Roth IRA

The SECURE Act 2.0, signed into law in late 2022, introduced several updates to retirement and education savings. One provision that has generated particular interest is the ability to roll over certain unused 529 plan funds into a Roth IRA.

This rule, effective in 2024, provides families with more flexibility when planning for education and long-term savings. Here’s what you should know.

529 to Roth IRA Rollover Basics

Traditionally, 529 plans have been used for qualified education expenses such as tuition, fees, books, and certain K–12 or graduate-level expenses. If funds were not fully used for education, the account owner faced the possibility of taxes and penalties on non-qualified withdrawals.

Another feature of 529 plans is the ability to change the beneficiary to another qualified family member. For example, if one child does not use all of the funds, the account owner can typically transfer the balance to another child, a sibling, or even a parent or grandchild without triggering taxes or penalties, provided the new beneficiary meets the IRS definition of a “family member.” This option has long been a way to preserve the tax-advantaged nature of the account if the original beneficiary does not need all of the funds.

With the new SECURE Act 2.0 provision, families now have an additional path: rolling certain unused funds into a Roth IRA for the original beneficiary, subject to specific rules and limits. Together, these options provide more flexibility for families seeking to make the most of their education savings.

Key Requirements and Limitations

The rollover option comes with important rules and restrictions:

• Lifetime Limit: Up to $35,000 total can be rolled over from a 529 to a Roth IRA for the same beneficiary. IRS Publication 590-A

• Annual Contribution Limits Apply: Rollovers count toward the annual Roth IRA contribution limit (e.g., $7,000 in 2024 for individuals under age 50). This means the rollover cannot exceed the annual cap.

• Account Age Requirement: The 529 account must have been open for at least 15 years.

• Contribution Restrictions: Contributions (and associated earnings) made in the last 5 years cannot be rolled over.

• Beneficiary Consistency: The Roth IRA must be established in the name of the 529 plan’s beneficiary—not the account owner.

Planning Considerations

This provision may help families who saved diligently for education but did not fully use the 529 funds. For example, if a child receives scholarships, attends a less expensive school, or does not pursue higher education, unused funds may now support their long-term retirement savings instead.

It is important to note that this strategy is not universally applicable. Eligibility depends on the beneficiary’s earned income, contribution limits, and whether the account meets the 15-year requirement. Additionally, state tax treatment of 529 rollovers can vary, so reviewing state-specific rules is essential.

Final Thoughts

The 529-to-Roth IRA rollover option under SECURE Act 2.0 provides another layer of flexibility for education and retirement planning. However, the rules are complex, and the strategy may not be appropriate for every situation.

Before making any decisions, it’s best to carefully review your circumstances, consult IRS guidance, and consider speaking with a qualified financial or tax professional.

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Disclosure: This content is for informational and educational purposes only and should not be interpreted as financial, legal, or tax advice. While efforts are made to ensure accuracy, no guarantee is made regarding the completeness or reliability of the information. Investment decisions should be based on individual circumstances. Consult a qualified professional before implementing any financial, legal, or tax strategies. Past performance does not guarantee future results. All investments carry risk, including potential loss of principal.