Can You Roll a 529 Into an IRA?

529 plans and Individual Retirement Arrangements (IRAs) serve as distinct savings vehicles, each designed with specific financial goals in mind. A 529 plan primarily facilitates tax-advantaged savings for qualified education expenses, allowing earnings to grow tax-free when used for schooling. Conversely, IRAs are dedicated retirement savings accounts, offering tax benefits for accumulating wealth for one’s later years. Recent legislative changes have introduced a new flexibility, allowing limited rollovers from 529 plans to IRAs under specific conditions. This provision, enacted through the SECURE 2.0 Act, aims to provide greater adaptability for families with unused education funds.

Eligibility and Requirements for Rollover

Transferring funds from a 529 plan to an IRA is subject to several specific criteria established by law to ensure the rollover is qualified. The 529 plan account must have been maintained for a minimum of 15 years for the designated beneficiary before any rollover can occur. This holding period is a foundational requirement for eligibility.

The beneficiary of the 529 plan must also be the owner of the IRA receiving the funds, ensuring alignment between the education savings and retirement accounts. Furthermore, any contributions, along with their associated earnings, made to the 529 plan within the five years immediately preceding the rollover date are ineligible for transfer. This rule ensures that only older, established funds can be moved.

There is a lifetime aggregate limit on the amount that can be rolled over from 529 plans to IRAs for a single beneficiary, currently set at $35,000. The annual rollover amount is also constrained by the IRA’s yearly contribution limits, which for 2025 is $7,000, or $8,000 if the beneficiary is age 50 or older.

The rollover amount counts towards the IRA’s annual contribution limit, meaning it reduces the amount an individual can otherwise contribute to their IRA for that year. The beneficiary must also have earned income at least equal to the amount being rolled over in the year of the transfer. However, typical income limitations that often apply to Roth IRA contributions are waived for these specific 529 to IRA rollovers.

The Rollover Process

Executing a qualified 529 to IRA rollover involves a sequence of specific actions to ensure compliance with federal regulations. The initial step requires contacting the administrator of the 529 plan to formally express the intent to perform a qualified rollover.

Subsequently, coordination with the IRA custodian is necessary to prepare the receiving account for the incoming funds. The 529 plan administrator will typically provide a distribution request form, which must be completed with details such as the rollover amount and the IRA account information.

It is generally recommended, and often required for tax-free treatment, to execute a direct rollover, also known as a trustee-to-trustee transfer. This means the funds are transferred directly between the 529 plan administrator and the IRA custodian, bypassing the account holder. This method minimizes the risk of tax complications that can arise from indirect rollovers where funds are first disbursed to the account holder.

After submitting the necessary forms to both the 529 plan and IRA providers, it is prudent to maintain detailed records of all correspondence and transaction confirmations. Processing times for rollovers can vary, often taking several business days or weeks, depending on the institutions involved. Some plans may impose temporary holds, for example, if address changes have recently occurred, potentially extending the processing period by 5 to 15 business days.

Tax Implications

A qualified rollover from a 529 plan to an IRA is designed to be a tax-free event at the federal level, meaning the transfer itself does not trigger income taxes or penalties. The funds subsequently grow within the IRA, subject to its specific tax treatment.

For instance, funds rolled into a traditional IRA will continue to grow tax-deferred, with withdrawals typically taxed in retirement. If the rollover is directed to a Roth IRA, the funds grow tax-free, and qualified withdrawals in retirement are also tax-free.

For tax reporting purposes, the 529 plan administrator is required to issue Form 1099-Q, which details the distributions made from the 529 account. The IRA custodian will typically issue Form 5498, reporting contributions received into the IRA. These forms are crucial for properly documenting the rollover with the Internal Revenue Service and ensuring it is treated as a non-taxable event.

If a rollover does not meet all the specified eligibility criteria, it may be considered a non-qualified withdrawal from the 529 plan. In such cases, the earnings portion of the withdrawn amount becomes subject to federal income tax and a 10% federal penalty. State tax treatment can also vary, with some states potentially levying their own income taxes or recapture provisions on such distributions.