When saving for a child’s future, most families prioritize educational expenses through a 529 plan. These tax-advantaged accounts are powerful tools for education savings, but they can also present challenges if the funds are not fully used. Fortunately, the Secure 2.0 Act has introduced a valuable new option. As of 2024, unused funds in a 529 account can be rolled into a Roth IRA for the beneficiary. This provision, often referred to as the “529 to Roth IRA rollover,” creates a meaningful bridge between college planning and long-term retirement savings. At Towerpoint Wealth, we help clients understand and utilize this rule to align education and retirement planning goals.
What Is a 529 Plan?
A 529 plan is a savings vehicle sponsored by states or educational institutions, created to encourage saving for higher education. Account owners, often parents or grandparents, contribute after-tax dollars that grow tax deferred. Withdrawals are tax and penalty free if used for qualified expenses such as tuition, room and board, and books.
Originally, the 529 account was limited to college costs, but recent changes expanded its use to include K–12 tuition and even student loan payments. Despite these expansions, some families end up with leftover funds, whether because of financial aid, scholarship funds, or changes in educational plans. These excess funds traditionally faced limited options, including nonqualified expenses withdrawals that could trigger income tax and penalties. With the Secure 2.0 Act, the federal government agency overseeing retirement accounts has opened a new door.
The Secure 2.0 Act and 529 to Roth IRA Rollovers
The Secure 2.0 Act was signed into law in 2022 and introduced sweeping updates to retirement planning. One of the most impactful provisions is the ability to complete a rollover from a 529 account to a Roth IRA without incurring taxes or penalties. This rollover to Roth IRA opportunity allows families to repurpose unused education savings into retirement savings for the 529 plan’s designated beneficiary.
The Roth IRA is a cornerstone of retirement planning. It offers tax-free growth and tax-free withdrawals in retirement, provided certain conditions are met. By shifting excess 529 funds into a Roth IRA, families can jumpstart retirement savings early in life, maximizing the power of compounding interest. The Roth IRA owner benefits from this strategy by building a tax-advantaged nest egg that complements other retirement accounts.
Rollover Rules and Requirements
While the 529 to Roth IRA provision offers tremendous planning flexibility, the Internal Revenue Service has established specific rollover rules and limits that families must follow.
Lifetime Maximum and Annual Limits
A maximum of $35,000 per designated beneficiary can be transferred from a 529 plan to a Roth IRA over their lifetime. This is the total lifetime limit for Roth IRA rollovers under this rule. Additionally, the annual rollover limit cannot exceed the Roth contribution limit for that tax year. In 2025, the Roth IRA contribution limit is $7,000 for individuals under age 50 and $8,000 for those 50 and older. These maximum contributions ensure compliance with IRS rules while optimizing retirement savings.
This means the rollover may need to occur over multiple years, with each transfer falling within the Roth IRA contribution limits set for that year.
15-Year Rule for the 529 Account
To be eligible for rollover to a Roth IRA, the 529 account must have been open for at least 15 years. Any contributions or associated earnings made within the last five years are not eligible for rollover. It is also critical that the rollover be completed as a trustee to trustee transfer, avoiding any disqualifying distributions.
Designated Beneficiary Requirements
The Roth IRA account receiving the rollover must be owned by the same person who is listed as the designated beneficiary of the 529 plan. This cannot be the parent or account owner unless they are also the beneficiary. In addition, the designated beneficiary must have earned income equal to or greater than the amount being rolled over in that tax year. Earned income is essential because the rollover counts toward that year’s Roth IRA contribution.
No Roth IRA Income Limits Apply
One significant advantage of this provision is that the usual Roth IRA income limits do not apply. High-income earners who may otherwise be ineligible for Roth IRA contributions can still benefit, as long as the other criteria are met.
Strategic Benefits for Towerpoint Clients
Our clients at Towerpoint Wealth often find themselves in situations where advanced education savings intersect with broader financial planning goals. The 529 to Roth IRA strategy provides a smart and tax-efficient way to align those objectives.
Flexibility for Unused Funds
Families with excess funds in a 529 plan can now redirect those dollars toward the beneficiary’s Roth IRA account, avoiding nonqualified expenses withdrawals that would trigger income tax and potential penalties. This flexibility ensures that financial aid or scholarship funds do not inadvertently leave families penalized for smart savings habits.
Accelerated Retirement Savings
Young adults who benefit from a 529 to Roth rollover gain early access to retirement savings through a Roth IRA account. Early contributions can grow tax deferred and support a financially secure future. A child’s Roth IRA seeded with 529 funds provides a head start that few other retirement planning tools can match.
Multigenerational Wealth Transfer
For high-net-worth families, this provision supports estate planning by allowing account owners to use the annual rollover limit to move wealth to the next generation without triggering gift tax concerns. This planning technique complements other benefits, such as the united states gift and generation skipping transfer tax exemptions.
Tax-Free Growth Potential
The beneficiary’s Roth IRA can grow tax deferred for decades. Qualified distributions from a Roth IRA are tax and penalty free, making this a superior long-term vehicle compared to taxable accounts. Additionally, Roth IRA rollovers of this type avoid incurring taxes that would normally apply to nonqualified withdrawals from a 529 account. Considering the past performance of Roth IRAs, this rollover can be a wise financial decision.
Considerations and Common Mistakes
Before initiating a 529 to Roth IRA rollover, families should consider the following factors and consult a trusted tax advisor or tax professional to avoid costly mistakes.
State Tax Implications
While the federal government permits the rollover tax and penalty free, not all states conform. Some may impose state taxes or claw back state benefits or a prior tax credit. It’s critical to verify your state’s treatment before initiating the rollover request.
Impact of Changing Beneficiaries
Changing the designated beneficiary or transferring funds between in state plans may restart the 15-year clock. This could delay eligibility for the rollover and complicate timing. At Towerpoint Wealth, we help clients evaluate whether retaining the original beneficiary is the better investment decision.
Coordination With Earned Income
The beneficiary must have earned income equal to the amount of the Roth IRA contribution for the tax year in which the rollover occurs. If a student is not working or has minimal income, the rollover will be limited or disqualified. Planning earned income, even part-time employment, becomes essential.
Sequential Planning
Because of the annual limit on Roth IRA contribution, fully utilizing the $35,000 lifetime maximum will typically take five or more years. Mapping out a long-term strategy is necessary, especially for families integrating college, graduate school, and retirement goals into one comprehensive plan.
Real-Life Examples of Strategic Use
Parents With Excess College Funds
A couple contributes $60,000 to a 529 plan over 18 years. Their child receives substantial financial aid and only uses $30,000. Instead of making nonqualified expenses withdrawals and paying income tax and penalties, the parents execute a 529 to Roth rollover of $7,000 annually into their child’s Roth IRA account. Over five years, they move $35,000 into a tax-advantaged retirement vehicle for their child.
Grandparents Supporting Multigenerational Planning
Grandparents who opened a 529 account for their grandchild now find those funds unused after the child receives scholarship funds. They work with a financial advisor to direct those leftover funds into the child’s Roth IRA, creating early retirement security and preserving family wealth tax efficiently.
Coordinating With a Financial Plan
A Towerpoint Wealth client with a high-income profession wants to help their child begin building long-term financial stability. They fund a 529 plan early and, after the child completes school, convert the remaining funds into a Roth IRA. This is part of a broader investment strategy aligned with long-term investment objectives and family values.
How Towerpoint Wealth Helps Clients Navigate 529 to Roth
Our team of fiduciary advisors specializes in aligning personal finance strategies with client values. We work closely with families to:
- Determine eligibility and timing for 529 to Roth IRA rollovers
- Maximize tax efficiency through coordinated retirement planning
- Ensure compliance with federal rollover rules and contribution limits
- Collaborate with your tax professional to minimize taxable income and preserve state benefits
- Craft legacy plans that integrate education savings, Roth IRA rollovers, and wealth transfer
Our disciplined process and commitment to comprehensive planning ensure every investment objective is addressed in a way that supports long-term success.
Frequently Asked 529 to Roth IRA Questions
Can I roll over any 529 to any Roth IRA?
No. The Roth IRA must belong to the designated beneficiary of the 529 plan. The rollover must be a trustee to trustee transfer to avoid tax consequences.
What if the 529 account is new or recently changed?
If the 529 account was opened less than 15 years ago or has had recent beneficiary changes, rollover eligibility may be delayed. Work with a tax advisor to evaluate your account history.
Are there income limits for this rollover?
There are no Roth IRA income limits for this type of rollover. However, the designated beneficiary must have earned income equal to the rollover amount.
Will the rollover affect my child’s financial aid?
It may. Funds in a Roth IRA could be counted differently in the financial aid process compared to a 529 plan. Consult your financial aid advisor before making changes if college aid is still a consideration.
How do I avoid incurring taxes?
Ensure that the rollover meets the lifetime limit, annual limit, earned income requirements, and is handled as a direct transfer. Working with a qualified tax professional will help you avoid mistakes and unnecessary tax return issues.
Final Thoughts
The Secure 2.0 Act has given families a smart new way to use their education savings without waste. The 529 to Roth IRA rollover creates opportunities to enhance retirement savings, reduce taxable income, and align legacy and education goals in a tax-efficient manner. Whether you are a parent, grandparent, or designated beneficiary, understanding and using this new provision can unlock new benefits and long-term growth potential.
To learn how you can maximize your 529 account and take full advantage of Roth IRA rollovers, contact Towerpoint Wealth today. We offer personalized guidance, tax advice in coordination with your CPA, and holistic financial planning designed to help you protect, grow, and transfer wealth effectively.
Looking for clarity on 529 to Roth IRA rollovers and other personal finance strategies? Schedule a consultation with Towerpoint Wealth today! Let’s plan with purpose.
