Rolling a 529 Plan Into a Roth IRA

Can I roll a 529 plan into a Roth IRA

SECURE 2.0 Act passed in December 2022 allows for rollovers of 529 college savings accounts into Roth IRAs without incurring taxes or penalties beginning in 2024 – this option has become known as “Backdoor Roth.”

This new rule does have some restrictions to take into account; this article will explore these in more depth.


A new law, the SECURE 2.0 Act, will enable Americans who invest in 529 plans to convert any unused funds to Roth IRAs – further making 529s an attractive college savings tool.

However, this new flexibility comes with tax repercussions. For instance, beneficiaries of 529 accounts who convert funds to Roth IRAs must pay income taxes on any earnings distributed and incur a 10% penalty if distributions occur before age 59 1/2.

Rollover into Roth may entice some to choose 529s as college savings accounts; however, before investing in one it would be prudent to first reach other financial goals like paying off consumer debt or building an emergency fund that covers at least three to six months of expenses; doing this will enable more savings long term.


When transferring funds from a 529 plan into a Roth IRA, the total transfer cannot exceed the sum of contributions plus earnings on those contributions. Furthermore, should an account owner (which could either be their parent or beneficiary) change the beneficiary to someone younger, there could be gift tax ramifications.

Withdrawals from a 529 plan may only be used for qualified education expenses such as tuition fees, room and board costs, textbooks or computers. Any time funds are taken out for anything other than these purposes, federal income taxes plus an additional 10% penalty apply.

Coverdell education savings accounts (ESAs), which offer lower contribution limits but no income restrictions, may also be an option for investing your college savings; however, withdrawals aren’t tax-free and earnings may be subject to capital gains taxes; for these reasons many opt for 529s over brokerage accounts as an investment vehicle for education savings.


Starting in 2024, beneficiaries can roll up to $35,000 of their lifetime unused 529 plan funds into a Roth IRA – but with certain limitations. It should be carefully considered.

Roth IRA contributions and earnings rolled over into 529 accounts will also count toward this limit.

Families that invest in 529 plans enjoy tax-free investment growth if used for qualified education expenses, but any leftover or ineligible spending could incur income taxes and an additional 10% penalty. Under new rollover rules, beneficiaries of unclaimed 529 funds may be able to avoid these penalties, although critics have noted it largely benefits wealthier families. Each state’s 529 plan rules may also differ, so working with an accountant or fiduciary financial advisor to review your state guidelines could also prove useful.


SECURE 2.0 contains a provision that makes it simpler for individuals to transfer unused 529 plan funds into Roth IRAs, saving taxes and penalties associated with traditional 529 plans. This change takes effect January 1, 2024.

Investors should keep in mind that the new rules do impose certain limitations. For example, funds held in an inherited IRA by beneficiaries for five years or longer cannot be moved over into Roth IRAs; and any funds moved must not exceed the annual IRA contribution limit for that year.

Rollovers must also be directed toward the same beneficiary of the original 529 account. If, for example, a mother originally named her daughter Margo as beneficiary but later switched it to her son Oliva, any remaining dollars in that old account cannot be converted to Roth for Margo as this restriction prevents people from abusing this opportunity to make backdoor Roth contributions.

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