529 to Roth IRA Rollovers: What You Need to Know 

The SECURE Act 2.0 created a provision allowing 529 to Roth IRA transfers, which took effect in 2024. This option provides an additional use for certain unused 529 assets and may introduce strategic tax-planning opportunities. It also comes with several conditions that limit its use. We have been fielding questions about this rule and hope the Q&A below helps those funding college savings plans. 

529 to Roth IRA Rule Conditions: 

• The 529 plan must have been open for at least 15 years 

• The transfer in any year is limited to the annual IRA contribution limit (less any actual IRA or Roth contributions made that year) 

• The lifetime maximum transfer is $35,000 

• Contributions to the 529 plan within the last five years, and earnings attributable to those contributions, are ineligible for transfer 

• The Roth IRA receiving the funds must be in the name of the 529 plan beneficiary 

What Does This Provision Aim to Accomplish? 

The provision permits certain unused 529 assets to be transferred to a Roth IRA when specific statutory requirements are satisfied. 

What Are the Main Benefits of Using a 529 Plan to Save for College Costs? 

A 529 plan offers tax-free earnings and tax-free withdrawals when the money pays for qualified education expenses. The owner of the plan maintains control of the money for the beneficiary. 

What Is the Most I Can Contribute to a 529 Plan? 

There is no statutory limit. Contributions below the annual gift tax exclusion amount can avoid gift tax reporting. The annual exclusion for 2026 is $19,000. Married persons can make gifts up to $38,000 to one person without filing a gift tax return. A special provision called superfunding a 529 allows you to contribute up to five years of annual exclusions to a 529 account in one year, for a maximum of $95,000 or $190,000 from a married couple in 2026. Superfunding requires a gift tax return filing for informational purposes but does not use any of your lifetime gift and estate tax exemption, unless you die during the five-year period, in which case the gifts are prorated. 

What Happens If 529 Plan Money Is Withdrawn and Not Used on a Qualified Education Expense? 

Withdrawals from 529 plans used for nonqualified expenses face income taxes and a 10% excise tax on the earnings portion of the withdrawal. To know the potential impact of the tax and penalty, you need to identify what portion of a 529 plan balance comes from original contributions and what portion represents earnings. 

Are There Exceptions to the 10% Penalty for 529 Withdrawals? 

Yes, scholarships are an exception to the 10% penalty. You can take nonqualified withdrawals up to the amount of the scholarship penalty-free, but you will pay income tax on the earnings. Scholarships may effectively turn some tax-free money into tax-deferred money. 

Are There Ways to Avoid Taxation and the Penalty on Earnings If the 529 Plan Beneficiary Doesn’t Need the Funds? 

Yes. You can change the 529 plan beneficiary to another qualifying family member, such as a sibling or cousin of the beneficiary, who has their own education expenses. You could also retain the funds for future use in graduate school or professional education. There is no time or age limit, and 529 funds can stay invested until needed. 

If I Change the Beneficiary of an Existing 529 Plan, Will That Restart the 15-Year Clock? 

The text of the law does not make the answer clear. Owners who might want to change the beneficiary to themselves to transfer funds to a Roth should proceed with caution until there is a consensus on the specifics of the 15-year condition. 

Could the 529 Beneficiary Make an IRA or Roth Contribution on Their Own and Roll Over Money from Their 529 to Their Roth in the Same Year? 

Yes, but the total contributed and transferred to the IRA and/or Roth cannot exceed the annual contribution limit for IRAs and Roths. 

Could I Roll Over $35,000 from a 529 to a Roth All at Once? 

No. The annual transfer limit equals the annual IRA and Roth contribution limit: $7,500 for persons under age 50 for the 2026 tax year. 

Does the Roth Owner Need to Have Earned Income in the Year of the 529 to Roth Rollover? 

It appears yes. The legislation does not explicitly spell it out, but the underlying rules seem to suggest the Roth owner needs compensation to make the transfer. In other words, a student or child may need compensation from a summer or part-time job if not yet employed full-time. This interpretation could change with guidance from Congress or the IRS. 

Does the Roth Owner Need to be Under the MAGI (Modified Adjusted Gross Income) Limits to Use the 529 to Roth Transfer? 

No. The law specifically states that transfers from 529 to Roth are not subject to the income limitations that normally apply for Roth IRA contribution eligibility. 

Could I Open a New 529 for a Child, or for Myself, with the Specific Intent of Using it to Transfer to Roth in the future? 

Potentially, with the caveat that rules could change, you would need to wait at least 15 years before getting the money into a Roth, and all the conditions described above apply. 

Could I Intentionally Over-Fund an Existing 529 Plan to Both Pay for College and Help Seed a Child’s Roth IRA? 

Current law may permit this result if all rollover requirements are ultimately satisfied. However, investors should carefully evaluate the risks, limitations, and potential future changes to applicable tax rules before pursuing such a strategy. 

How Much Would I Need to Contribute to a 529 Plan Today for It to Reach $35,000 in 15 Years? 

Depending on investment performance, a deposit of $11,000 earning 8% per year could grow to $35,000 in 15 years. At 7% per year, the figure is $12,700, and at 6% per year, it is $14,600. 

These figures are hypothetical examples for illustrative purposes only, assume constant annual rates of return, and are not intended to predict or project actual investment results. Actual results will vary and may be higher or lower. 

If I Am Over the Income Limit to Contribute Directly to a Roth, How Could I Approach This Rule Strategically? 

You could open a 529 plan today with a small balance and monitor any rule changes. If regulations move out of favor, the consequences for a small balance and nonqualified withdrawal are modest. If the 529 rollover to Roth remains available, you could contribute more to the 529 later, before the last five years of the 15-year period. Some individuals may evaluate this provision as part of a broader tax planning strategy. However, the applicability and effectiveness of any approach will depend on individual circumstances and future legal or regulatory developments. 

I Use the Backdoor Roth Strategy Today. Does the SECURE Act 2.0 Matter to Me? 

The legislation didn’t change the ability to continue using the backdoor Roth strategy. 

The 529 to Roth rollover provision adds a valuable tool to long-term planning, but the rules require careful coordination across account structure, timing, and income. A fiduciary advisor can help determine whether this strategy fits your situation and how to structure a 529 plan to take full advantage of it. Schedule an introductory call today to explore how this provision might work for your family. 

This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.