How to Rollover a 529 Plan to a Roth IRA

A provision within the SECURE 2.0 Act now permits tax-free rollovers from 529 plans directly into Roth Individual Retirement Accounts (IRAs). This change offers flexibility for families with leftover college savings. Previously, withdrawing unused 529 funds for non-educational reasons would trigger both income tax and a 10% federal penalty on the earnings portion. This new rule allows those funds to be used to begin building a retirement nest egg without the tax burden.

Eligibility Requirements for the Rollover

For a rollover to be permissible, the 529 account must have been open for a minimum of 15 years, with the clock starting from the account’s creation date. The interpretation of this rule can become complex if the designated beneficiary of the 529 plan has been changed. The current general interpretation is that changing the beneficiary will likely restart the 15-year waiting period.

The rollover of funds is only allowed into a Roth IRA owned by the same individual who is the designated beneficiary of the 529 plan. The money cannot be moved to a Roth IRA belonging to the 529 account owner, such as a parent, unless that parent is also the named beneficiary on the 529 account.

The beneficiary must have earned compensation for the tax year that is at least equal to the amount being rolled over. This is because the rollover is treated as a contribution to the Roth IRA, and earned income is required to support contributions.

Any contributions made to the 529 plan within the five-year period leading up to the date of the rollover are ineligible to be moved to the Roth IRA. This rule also applies to any earnings that have accrued on those recent contributions.

Rollover Limits and Financial Rules

A lifetime maximum of $35,000 per beneficiary can be moved from a 529 plan into a Roth IRA. This is a cumulative cap, meaning the total of all such rollovers for an individual cannot exceed this amount over their life. This $35,000 limit is a fixed number and is not currently indexed for inflation.

The annual rollover amount cannot be more than the standard IRA contribution limit for that specific year. For 2025, this limit is $7,000 for individuals under age 50 and $8,000 for those 50 and older. This means that reaching the full $35,000 lifetime maximum would take a minimum of five years.

The amount rolled over from the 529 plan reduces, dollar-for-dollar, the beneficiary’s personal Roth IRA contribution limit for the year. For instance, if a beneficiary under 50 rolls over $4,000 from a 529 plan in 2025, they can only contribute an additional $3,000 of their own money to their Roth IRA. A notable advantage is that the normal income limitations that can prevent high-earners from contributing to a Roth IRA do not apply to these rollovers.

Information and Documentation to Prepare

For the 529 plan, you will need the account number and recent statements to verify the account has met the 15-year holding period. You will also need contribution records to confirm which funds are eligible under the 5-year rule.

The beneficiary must have an established Roth IRA; if one does not exist, it must be opened before the rollover can be requested. You will need the Roth IRA account number, along with the full name and address of the financial institution that acts as the custodian for the account.

Finally, you will need the beneficiary’s personal details. This includes their full legal name and their Social Security Number or Taxpayer Identification Number, which are required for the rollover paperwork.

The Rollover Process Step-by-Step

Contact your current 529 plan administrator and inform them that you intend to execute a direct rollover to a Roth IRA for the beneficiary. The provider will guide you on their specific procedures and supply the necessary rollover paperwork, such as a “Roth IRA Rollover Request Form.”

The movement of funds should be handled as a “direct rollover” or “trustee-to-trustee” transfer, where the 529 plan administrator sends the money directly to the Roth IRA financial institution. An indirect rollover, where a check is made payable to the beneficiary, is not permitted for these transactions and can create tax complications.

After submitting the request, verify the transaction’s completion with the Roth IRA custodian. You should confirm they have received the funds from the 529 plan and correctly recorded the deposit as a rollover on Form 5498, not as a regular contribution.