Can I Roll a 529 Plan Into a Roth IRA?

Rollover from 529s to Roth IRAs can provide young participants with an early start on retirement savings, but some important considerations must be kept in mind before choosing this route.

Accounts must be at least 15 years old, and beneficiaries must remain the same throughout the rollover process. Unfortunately, the IRS has not made clear whether changing beneficiaries resets this requirement.

What is a 529 plan?

A 529 plan is a tax-advantaged savings account designed to cover qualified education expenses such as tuition fees, books, supplies and equipment for any higher education institution including trade or vocational schools.

An individual may open and change the beneficiary of an investment account at any time. Withdrawals typically incur no income taxes or penalties; however there may be restrictions as to how the funds can be spent.

SECURE 2.0 Act includes a provision that permits unused 529 plans to be converted to Roth IRAs subject to certain limitations, providing families with children who don’t attend college or pursue less expensive options with an option that doesn’t incur taxes or the 10% penalty with their assets rolled over directly into retirement accounts without incurring income taxes or 10% penalties on those funds.

How can I roll my 529 plan into a Roth IRA?

New legislation now permits unused 529 education savings account funds to be converted to Roth individual retirement accounts (IRAs) tax-free and in the beneficiary’s name; provided the transfer doesn’t exceed annual Roth IRA contribution limits.

Additionally, the beneficiary must have been living in the state where their 529 plan was established for at least 15 years prior to making a rollover decision. If the beneficiary is uncertain how state taxes may impact a rollover decision, seeking advice from an accountant is recommended.

An important point is that Roth IRA contributions don’t incur income restrictions when being converted from 529 plans into Roth IRAs; therefore beneficiaries who earn too much to contribute directly can still roll their unused 529 funds over and contribute via Roth. This new option could help families get ahead with saving for retirement while increasing options when using these funds.

Can I roll my 529 plan into a Roth IRA for myself?

Starting in 2024, new regulations allow individuals to transfer unused education funds from a 529 account into a Roth IRA for themselves or another beneficiary of your choice. Any money taken out must have been in the 529 plan for at least 15 years and any Roth IRA contributions made within that year may be subject to annual contribution limits.

Note that while this rollover may be beneficial for college savings, it should not be used as part of your retirement planning strategy. Withdrawals made to pay nonqualified expenses – like vacations or new cars – from your Roth IRA will incur penalties, while income restrictions typically applied to Roth contributions also apply when using this method of transfer. Before making a move like this one it would be wise to consult a tax or financial professional before initiating it.

Can I roll my 529 plan into a Roth IRA for my grandchild?

Under SECURE Act 2.0 legislation, 529 plan beneficiaries have the ability to roll over any unused funds into a Roth IRA for their beneficiary and avoid paying taxes and penalties on withdrawal, which would otherwise be treated as non-qualified distribution. There are certain restrictions and limitations regarding this rollover option: an annual contribution limit ($7,000 in 2025) and lifetime maximum limit per beneficiary ($35,000); state tax treatment can differ depending on individual circumstances and may change accordingly.

Roth IRA funds withdrawn for purposes other than qualified higher education expenses are subject to federal income tax and a 10% penalty; unlike withdrawals from 529 plans which are taxed at only state level. For more information regarding this new rollover option, consult with a financial or tax professional.