Families with unused funds remaining in a 529 education savings plan may have another option for putting those dollars to work.
Under the SECURE 2.0 Act, certain 529 plan funds can be rolled directly into a Roth IRA for the plan beneficiary. This can provide additional flexibility for excess education savings, but several requirements and limitations apply.
Why the Rollover Option Matters
Families may have money left in a 529 plan because a beneficiary received a scholarship, attended a less expensive school than anticipated or simply did not need the full balance.
Traditionally, options included keeping the funds for future education expenses, changing the beneficiary or taking a nonqualified distribution, which can result in income tax and a 10% federal penalty on the earnings portion.
A qualifying 529-to-Roth IRA rollover provides another alternative by allowing eligible funds to be transferred to the beneficiary’s Roth IRA without federal income tax or penalty.
What Are the Requirements?
Several conditions must be met:
- The Roth IRA must belong to the 529 beneficiary.
- The 529 account generally must have been maintained for at least 15 years.
- Contributions made within the previous five years, along with related earnings, generally cannot be rolled over.
- The rollover must be made directly from the 529 plan to the beneficiary’s Roth IRA.
- A $35,000 lifetime rollover limit applies for each beneficiary.
Good recordkeeping is important, particularly when contributions have been made over many years.
Annual IRA Contribution Limits Also Apply
The $35,000 lifetime limit does not mean the entire amount can be transferred at once.
For 2026, the annual IRA contribution limit is $7,500. Other IRA contributions made for the beneficiary during the year reduce the amount available for a 529-to-Roth rollover.
For example, if an individual contributes $3,000 to an IRA in 2026, the remaining amount potentially available for a 529 rollover would generally be $4,500.
The beneficiary must also generally have enough compensation for the year to support the contribution. However, the normal Roth IRA income limitations do not apply in the same way to qualifying 529-to-Roth IRA rollovers.
What Should Families Consider?
Before moving funds, families should review:
- The age of the 529 account
- When contributions were made
- The beneficiary’s compensation for the year
- Other IRA contributions made during the year
- Any prior 529-to-Roth IRA rollovers
- State tax treatment, which may differ from federal rules
- Whether any beneficiary changes could affect eligibility under the 15-year rule
Because some aspects of the rules may still require additional guidance, families should review their individual circumstances before completing a rollover.
A Flexible Option for Unused Education Savings
A 529-to-Roth IRA rollover can provide another way to use education savings that are no longer needed for their original purpose.
For an eligible beneficiary, the rollover may offer an opportunity to build retirement savings while avoiding the tax and penalty that can apply to certain nonqualified 529 withdrawals.
If you have unused funds in a 529 plan and are considering a Roth IRA rollover, contact your ShindelRock tax professional to discuss how the rules may apply to your situation.
