529 to Roth IRA Rollover: Rules and Limits
Convert unused 529 college savings into a beneficiary's Roth IRA. Understand the specific financial and time-based rules for this tax-free transfer.
A provision in the SECURE 2.0 Act of 2022 allows for the tax-free and penalty-free transfer of funds from a long-standing 529 education savings plan into a Roth IRA for the plan’s beneficiary. This change offers a solution for those who may have overfunded a 529 plan or whose beneficiary received scholarships, chose a less expensive school, or decided against higher education. Previously, leftover funds in a 529 account used for non-education purposes were considered a nonqualified withdrawal, with the earnings portion subject to both income tax and a 10% federal tax penalty.
Rollover Eligibility Requirements
The 529 plan must have been established and maintained for a minimum of 15 years before the date of the rollover. This long-term horizon is designed to ensure the account was genuinely intended for education expenses, not as a short-term vehicle to funnel money into a Roth IRA. The 15-year clock starts from the date the account was first opened and funded.
The rollover must be made to a Roth IRA that is owned by the same individual who is the designated beneficiary of the 529 plan. An account owner, such as a parent or grandparent, cannot direct the funds into their own Roth IRA unless they are also named as the beneficiary on the 529 account. This ensures the person for whom the education funds were originally saved is the one who benefits from the retirement savings.
A “seasoning” rule applies to recent contributions. Any contributions made to the 529 account within the five-year period leading up to the rollover, along with any earnings on those specific contributions, are ineligible for the transfer. For instance, if an account had a balance of $40,000 five years ago and a new $2,000 contribution was made last year, only the original $40,000 and its associated growth would be eligible. This rule prevents individuals from making large, last-minute deposits into a 529 plan simply to move them into a Roth IRA.
Understanding the Rollover Limits
There is a lifetime maximum of $35,000 per beneficiary. This is a hard cap, meaning an individual can only receive a total of $35,000 from any and all 529 plans via this rollover method over the course of their life. This lifetime limit is not indexed for inflation.
The annual rollover amount cannot be more than the standard Roth IRA contribution limit for that specific tax year. For 2025, this limit is $7,000 for individuals under age 50 and $8,000 for those age 50 and older. Therefore, to reach the full $35,000 lifetime maximum, it would take at least five years of rollovers, assuming the annual limit remains at or above $7,000.
The amount rolled over from a 529 plan directly reduces the beneficiary’s ability to contribute other money to their Roth IRA for that year. For example, if a beneficiary with a $7,000 annual limit rolls over $4,000 from a 529 plan, they can only contribute an additional $3,000 from their earned income for that year. The beneficiary must also have earned income at least equal to the rollover amount for the year the transfer occurs.
The normal income restrictions for contributing to a Roth IRA do not apply to the rollover amount. Individuals with a modified adjusted gross income (MAGI) above a certain threshold are prohibited from making direct Roth IRA contributions. However, these MAGI limits are waived for the 529-to-Roth rollover, allowing high-income beneficiaries to utilize this strategy when they otherwise could not contribute.
How to Complete the Rollover
The first step is to contact both the administrator of the 529 plan and the financial firm that holds the beneficiary’s Roth IRA. This initial communication is to confirm that both institutions are prepared to handle this specific type of transaction, as the provision is relatively new.
The required method for moving the money is a direct trustee-to-trustee transfer. This means the funds must be sent directly from the 529 plan provider to the Roth IRA provider. The account holder should not receive a check made out to them personally, as this could be misclassified as a non-qualified distribution and trigger unintended tax consequences. The request should explicitly be for a direct rollover.
To authorize the transfer, both the 529 plan and the Roth IRA provider will require the completion of specific paperwork. These forms will ask for details such as the 529 account number, the beneficiary’s Roth IRA account number, and the exact dollar amount to be rolled over. The account owner and beneficiary will need to sign these documents to provide authorization.
After the paperwork is submitted, the transfer process will begin. This can take anywhere from several business days to a few weeks, depending on the institutions involved. Once the transaction is complete, the account holder should receive confirmation statements from both providers showing the withdrawal from the 529 plan and the deposit into the Roth IRA.