Roth IRA rollover: 529 plans update: New rule lets families move up to $35,000 into a Roth IRA
Some reports say there are about 17 million 529 accounts in the United States. This shows that many families use these plans to save money for college, according to Kiplinger. But sometimes a problem happens. Parents save money in a 529 plan, but later they find out that their child does not need all the money for college. In some cases, the child decides not to go to college at all. When this happens, the money in the 529 plan can stay unused.
Another situation happens when parents save too much money for education and end up with extra funds in the account after college costs are paid. Some families delay opening a 529 account because they worry the money will be stuck there and hard to use if education plans change. Because of new rules in the SECURE 2.0 Act, families can now move unused money from a 529 plan into a Roth IRA retirement account, if certain conditions are met, as per the Kiplinger. The change officially began at the start of 2024, making it possible to transfer money from education savings into retirement savings.
New tax rule for 529 plans
The SECURE 2.0 Act brought many new rules about retirement savings. One important rule allows people to move money from a 529 plan to a Roth IRA without paying taxes. Section 126 of the law changed the U.S. tax rules to allow these transfers, but only if certain conditions are followed. This means that if a family has extra money left in a 529 plan, they can move that money into a Roth IRA retirement account.
Normally, if people take money out of a 529 plan for something other than education, they have to pay income tax and a penalty. But with this new rule, families can avoid those taxes and penalties if they move the unused money into a Roth IRA. Because this rule gives families more flexibility with their savings, experts believe more parents may feel comfortable opening 529 plans in the future.
The law states that families who save in 529 accounts should not face taxes or penalties if the student finds another way to pay for education, via Kiplinger. According to the law, this rule allows families to keep their savings and begin building retirement funds instead of losing money to penalties.
How much money can be moved
A maximum of $35,000 from a 529 plan can be transferred into a Roth IRA during a person’s lifetime. The $35,000 cap applies to each beneficiary of the 529 account. Since the rule took effect in 2024, the lifetime rollover limit has remained $35,000 per beneficiary. Even though the lifetime limit is $35,000, each rollover still counts toward the yearly Roth IRA contribution limits. For 2026, the annual Roth IRA contribution limit increased to $7,500, compared with $7,000 in 2025. People aged 50 or older can add a catch-up contribution of $1,100, making their total yearly contribution $8,600 in 2026. The catch-up contribution was previously $8,000 in 2025, but it increased to $8,600 in 2026, as noted by Kiplinger.
Important rules and limitations
Before any rollover can happen, the 529 plan must have been open for more than 15 years. If the person who owns the 529 account is different from the beneficiary, the Roth IRA must be opened in the beneficiary’s name. Any money added to the 529 account within the last five years cannot be rolled over into a Roth IRA.
Even if the account has more unused money, only $35,000 total can be moved to a Roth IRA, as per the report by Kiplinger. The beneficiary must have earned income during the year, and the amount transferred cannot be more than their earnings for that year.
Why this move can be smart
Rolling over unused funds allows the money saved for college to be used instead for retirement planning. If parents saved more than needed for college costs, they can move the extra funds into retirement accounts instead of paying penalties. Families whose children skip college can still use the savings productively through retirement investing.
The amount moved from the 529 plan will count toward the annual Roth IRA contribution limit for that year, as citing by Kiplinger. The beneficiary must have enough income in that year to match the rollover amount. While the rollover is tax-free under federal law, some U.S. states might still charge state taxes on the transfer. Financial experts recommend consulting a tax professional before making the rollover decision. Rules around 529 plans and retirement savings may change over time, so people should stay updated to make the best financial choices.
FAQs
Q1. Can you move money from a 529 plan to a Roth IRA?
Yes, under the SECURE 2.0 Act you can roll over up to $35,000 from a 529 college savings plan to a Roth IRA if certain rules are met.
Q2. What conditions must be met for a 529 to Roth IRA rollover?
The 529 account must be open for 15 years, the beneficiary must have earned income, and the rollover must follow yearly Roth IRA contribution limits.
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