Can I Roll a 529 Into a Roth IRA?

For families saving for future education costs, 529 plans offer tax-advantaged growth and distributions for qualified higher education expenses. Roth IRAs provide a powerful retirement savings vehicle, allowing tax-free withdrawals in retirement. The SECURE 2.0 Act of 2022 introduced a new opportunity to transfer unused 529 plan funds directly into a Roth IRA. This allows for tax-free and penalty-free rollovers, offering flexibility for unused education funds and bolstering retirement savings. This new option became effective on January 1, 2024, and can significantly impact long-term financial planning for beneficiaries.

Eligibility and Requirements

The 529 plan must have been open for at least 15 years before any funds can be rolled over to a Roth IRA. This requirement helps ensure the 529 plan was genuinely established for educational purposes, rather than solely as a backdoor Roth IRA contribution strategy. Changing the designated beneficiary may reset this 15-year clock, though official IRS guidance is pending.

Funds within the account must also meet a holding period. Contributions and their earnings deposited within the last five years are not eligible for rollover. This five-year seasoning rule means only older contributions and their growth can be moved. The intent of this rule is to prevent individuals from making a last-minute contribution to a 529 plan simply to immediately roll it into a Roth IRA.

The 529 plan beneficiary must also be the owner of the Roth IRA receiving the funds. This ensures the rollover directly benefits the intended individual. The beneficiary must also have earned income at least equal to the amount being rolled over in the year of the transfer. This earned income requirement aligns with standard Roth IRA contribution rules, but the typical Roth IRA income limitations do not apply to these rollovers.

Limits apply to the amount that can be transferred. The annual rollover amount cannot exceed the annual Roth IRA contribution limit for that year. For example, in 2025, this limit is $7,000, or $8,000 for those age 50 and older. Any regular contributions the beneficiary makes to their Roth IRA or traditional IRA in the same year will reduce the available rollover amount.

There is a lifetime cap on the total amount that can be rolled over for any single beneficiary. This limit is $35,000. This means a beneficiary can only transfer a maximum of $35,000 over their lifetime, spread across multiple years to adhere to annual limits. This lifetime cap also discourages the intentional overfunding of 529 plans with the primary goal of converting them into retirement accounts.

The Rollover Process

Initiating a rollover begins by contacting your 529 plan administrator. Most providers have specific forms or procedures for this transfer. These forms will require information about the Roth IRA, including the custodian’s details and the account number, to facilitate a direct transfer.

There are two main methods for conducting a rollover: a direct trustee-to-trustee transfer or an indirect rollover. A direct trustee-to-trustee transfer involves the 529 plan administrator sending funds directly to the Roth IRA custodian. This method is generally recommended as it minimizes errors and ensures tax compliance. Many financial institutions are now equipped to process these direct transfers.

An indirect rollover occurs if funds are first distributed to the beneficiary, who then deposits them into their Roth IRA. While possible, this method carries significant risk. The beneficiary must complete the deposit into the Roth IRA within 60 days of receiving the distribution to avoid potential taxes and penalties. Failing to meet this 60-day window can result in the entire distribution being treated as a non-qualified withdrawal, leading to income tax and a 10% federal penalty on the earnings portion. Due to potential unintended tax consequences, direct trustee-to-trustee transfers are the more straightforward and secure option.

Once forms are submitted to the 529 plan administrator, they will process the request. Processing time varies between providers, generally taking a few business days to a few weeks for funds to transfer. Follow up with both the 529 plan administrator and the Roth IRA custodian to confirm transfer completion. Retain all relevant paperwork, such as confirmation emails and statements, for your records and future tax reporting.

Tax Considerations

A qualified 529-to-Roth IRA rollover is tax-free and penalty-free at the federal level. This means neither original contributions nor earnings rolled over will be subject to federal income tax or the typical 10% penalty for non-qualified withdrawals. This tax-advantaged treatment allows unused education savings to transition seamlessly into retirement savings.

The amount rolled over counts towards the beneficiary’s annual Roth IRA contribution limit. For instance, if the annual Roth IRA contribution limit is $7,000 and the beneficiary rolls over $5,000, they can still contribute an additional $2,000 to their Roth IRA from other earned income sources. This means the rollover does not prevent the beneficiary from making regular Roth IRA contributions, provided they have remaining contribution room and meet earned income requirements.

For tax reporting purposes, the 529 plan administrator will issue Form 1099-Q, “Payments from Qualified Education Programs,” reporting the distribution. Separately, the Roth IRA custodian will issue Form 5498, “IRA Contribution Information,” reporting the contribution amount, including the rollover. For qualified rollovers, the amount will be entered in Box 10 of Form 5498, designated for Roth IRA contributions, rather than as a rollover in Box 2. These forms are for recordkeeping and sent to both the account holder and the IRS, but generally do not need to be actively entered on your tax return if the rollover meets all qualifying conditions.