Can You Transfer a 529 to a Roth IRA?

A 529 college savings plan is a tax-advantaged investment vehicle for education expenses, while a Roth IRA is a retirement savings account with tax-free withdrawals. Historically, transferring funds between these accounts presented challenges. However, the SECURE Act 2.0, effective January 1, 2024, introduced a new pathway. This law permits a direct, tax-free rollover of unused 529 plan funds into a Roth IRA for the same beneficiary. This flexibility allows individuals with overfunded 529 plans to redirect savings towards retirement goals without penalties or taxes.

Eligibility for 529 to Roth IRA Transfers

Transferring funds from a 529 plan to a Roth IRA has several conditions established by the SECURE Act 2.0. The 529 plan must have been open for at least 15 years prior to the date of the rollover. The individual who is the beneficiary of the 529 plan must also be the owner of the Roth IRA receiving the funds.

Any contributions made to the 529 plan, along with their associated earnings, within the last five years are not eligible for transfer. This rule prevents recent contributions from being immediately diverted to a Roth IRA, ensuring funds have been held for a reasonable period.

The amount transferred in any given year is subject to the annual Roth IRA contribution limits. For example, in 2025, the limit is $7,000 for those under age 50, and $8,000 for individuals aged 50 and older. Any regular contributions made directly to the Roth IRA in the same year will reduce the amount that can be rolled over.

A lifetime maximum transfer limit of $35,000 per beneficiary applies to these rollovers. This means the cumulative amount transferred from 529 plans to Roth IRAs for a single beneficiary cannot exceed $35,000 across all 529 accounts.

Additionally, the Roth IRA owner must have earned income at least equal to the amount being transferred in the year of the rollover. This earned income requirement ensures the beneficiary has a legitimate basis for contributing to a Roth IRA.

Understanding the Tax Treatment

A qualified 529 to Roth IRA transfer offers tax advantages by allowing funds to move without incurring income tax or penalties. When all eligibility requirements are met, the transferred amount is treated as a tax-free and penalty-free rollover contribution to the Roth IRA. This means neither original contributions nor accumulated earnings become taxable income at the time of transfer.

While the transfer itself is not a taxable event, the rolled-over amount counts towards the Roth IRA’s annual contribution limit. This limits the amount that can be moved in a single year, potentially necessitating multiple transfers over several years to utilize the full $35,000 lifetime limit. For instance, if the annual Roth IRA contribution limit is $7,000, it would take five years to transfer the maximum $35,000, assuming no other contributions are made to the Roth IRA.

In contrast, non-qualified 529 distributions for non-education expenses are subject to federal income tax on the earnings portion. A 10% federal penalty tax also applies to those earnings. The ability to transfer funds to a Roth IRA tax-free and penalty-free provides an alternative for those who might otherwise face these penalties on unused education savings.

Steps for Initiating a Transfer

Executing a 529 to Roth IRA transfer requires coordination between financial institutions. First, contact your 529 plan administrator to understand their specific procedures for initiating such a rollover. Each plan may have its own forms and requirements for processing this type of transaction.

Next, reach out to your Roth IRA custodian to confirm their process for receiving a direct rollover from a 529 plan. The transfer must occur as a direct trustee-to-trustee rollover. This means the funds move directly from the 529 plan administrator to the Roth IRA custodian without passing through your personal bank account. Receiving the funds personally before depositing them into the Roth IRA could result in the distribution being treated as a non-qualified withdrawal, leading to taxes and penalties.

You will need to provide certain information to both institutions, such as the Roth IRA account number, the beneficiary’s details, and specific instructions regarding the amount and timing of the transfer. Be prepared for processing times, which can vary depending on the institutions involved. After the transfer, retain all transaction records, including statements from both the 529 plan and the Roth IRA, for your tax records. This documentation helps verify the tax-free nature of the rollover during future tax filings.

Other Options for Unused 529 Funds

If a 529 to Roth IRA transfer is not feasible or desired, several other options exist for managing unused 529 plan funds.

Change Beneficiary

One approach is to change the beneficiary of the 529 plan to another eligible family member. The IRS provides a broad definition of a qualified family member, which includes siblings, children, parents, and first cousins of the original beneficiary. This allows the funds to continue growing tax-free for another individual’s education expenses.

K-12 Expenses

Funds can be used for K-12 tuition expenses. Up to $10,000 per student per year can be withdrawn tax-free from a 529 plan for tuition at public, private, or religious elementary or secondary schools. Starting July 4, 2025, this expands to include other K-12 expenses like curriculum materials, books, and tutoring services.

Apprenticeship Programs

529 funds can also cover expenses for apprenticeship programs, provided they are registered and certified under the National Apprenticeship Act.

Student Loan Repayment

Funds can be applied towards student loan repayment. The SECURE Act allows for a lifetime limit of $10,000 per beneficiary to be paid towards qualified student loans, including those of the beneficiary or their siblings.

Qualified Higher Education Expenses

Beyond these specific uses, 529 plans cover a wide range of qualified higher education expenses. These include tuition, fees, books, supplies, equipment, and room and board for students enrolled at least half-time at eligible educational institutions.

If funds are withdrawn for non-qualified expenses, the earnings portion will be subject to federal income tax and a 10% federal penalty.