Disclaimer: The following is for informational purposes only and not financial advice. Always do your own due diligence. I am not a licensed advisor.

529 to Roth IRA: A New Path to Retirement Savings

Imagine this: you’ve been saving for your child’s education for years through a 529 plan. You did the responsible thing, put money aside, watched it grow, and felt at peace knowing college would be covered. But then something unexpected happens—your child gets scholarships, chooses a more affordable school, or decides on a different path entirely. Suddenly, you’re left with thousands of unused dollars in a 529 account, and the question looms: what now?

Until recently, the options were frustrating. You could transfer the funds to another beneficiary, or withdraw them and face taxes plus penalties on earnings. But starting in 2024, a groundbreaking new rule under the Secure Act 2.0 changes everything. Now, families can roll over unused 529 funds directly into a Roth IRA—avoiding penalties, avoiding taxes, and transforming education savings into retirement wealth.

This change is more than a technical update. It’s a chance to give children a financial head start on retirement, decades earlier than most people begin. Let’s explore what this means, the rules to follow, and how to make the most of this new opportunity.

What Is a 529 Plan and Why Does It Matter?

A 529 plan is a tax-advantaged account designed for education. Families contribute after-tax money, which then grows tax-free. Withdrawals for qualified education expenses—tuition, books, housing, even student loan payments—are tax-free as well. Many states even offer tax deductions or credits for contributions.

The downside has always been the penalty trap: if funds aren’t used for education, earnings are taxed as income plus a 10% penalty. Parents often overfund to be safe, but that safety sometimes leaves money stranded. That’s where the new 529 to Roth IRA rollover becomes life-changing.

The New 529 to Roth IRA Rollover

As of January 2024, you can roll up to $35,000 over a lifetime from a 529 account into a Roth IRA. The money continues to grow tax-free, but this time it’s dedicated to retirement instead of tuition. Think of it as a bridge: education savings that didn’t get used still serve a life-changing purpose later.

Imagine your child graduates debt-free thanks to scholarships but has $30,000 left in their 529. Instead of paying penalties to access it, you could start their Roth IRA—a retirement account that might grow into hundreds of thousands of tax-free dollars over their lifetime.

Key Rules You Must Know

The new rule comes with specific requirements to prevent misuse. Here’s what you need to keep in mind:

The 15-Year Rule

The 529 account must be open for at least 15 years before any funds can be rolled over. That means starting early matters—open an account as soon as possible, even if you can’t contribute a significant amount.

The 5-Year Contribution Rule

Contributions (and their earnings) made within the last 5 years are not eligible for rollover. This rule prevents last-minute “backdoor Roth” funding.

Same Beneficiary Requirement

The beneficiary of the 529 must also be the Roth IRA account owner. In other words, parents cannot roll 529 funds into their own Roth IRAs. The money follows the child.

Lifetime and Annual Limits

• Maximum rollover: $35,000 per beneficiary over a lifetime.
• Annual rollover capped by Roth IRA contribution limits ($7,000 in 2025, $8,000 if age 50+).
• Rollover counts toward annual contribution limits.

Earned Income Requirement

The beneficiary must have earned income equal to or greater than the rollover amount. If your child isn’t working, the rollover can’t happen that year.

A Real-Life Example

Meet Sarah. Her parents opened a 529 when she was born. At 25, she graduates with scholarships covering most of her costs, leaving $40,000 unused in the account.

Because her 529 has been open for more than 15 years, Sarah can roll funds into her Roth IRA. Each year, she rolls over $7,000, the maximum annual contribution allowed, until she reaches the $35,000 lifetime limit.

Now imagine Sarah lets that $35,000 grow tax-free until she’s 65. At a modest 7% annual return, that initial rollover could grow to nearly $500,000 tax-free. What once was “extra” college savings has become a cornerstone of her retirement.

Benefits Beyond College

This new option doesn’t just ease parents’ fears about overfunding. It reshapes how families think about education savings.

• More Confidence in Saving: Parents can save aggressively without worrying about “wasted” funds.
• Early Retirement Boost: Children get decades of compounding tax-free growth.
• Flexibility: Funds no longer feel trapped in education-only use.

Important Considerations

While this new rule is powerful, it’s not without caveats:

• Once funds move into a Roth IRA, control shifts to the beneficiary. Unlike a 529, where parents are account owners, Roth IRAs belong to the child outright.
• Rules around changing beneficiaries remain unclear. The IRS has yet to clarify if switching beneficiaries resets the 15-year clock.
• State tax rules vary. Some states may treat rollovers differently, so check with your financial advisor.

A Rare Win for Families

The 529 to Roth IRA rollover is one of the most exciting financial planning opportunities in years. For families who’ve saved diligently, it’s a way to ensure no dollar goes to waste. For young adults, it’s a gift that could define their retirement.

Opening a 529 early is now more valuable than ever—not just for education, but for lifelong financial security. By understanding the rules and planning carefully, parents can give their children more than an education fund. They can give them a head start on the kind of retirement most people only dream of.