Transferring Unused 529 Plan Proceeds into a Roth IRA

One of the more useful provisions of the Secure Act 2.0 gives those who have unused 529 plan balances the option of rolling over funds with no tax implications into a Roth IRA. This enables those diligent savers who have accumulated funds inside 529 plans that were not needed to cover education expenses, a tax favored use for these excess/unused funds.

Here are the key rules for rolling over funds from a 529 plan to a Roth IRA:

1. 529 Account Must Be Open for at Least 15 Years. The account needs to have been maintained in the beneficiary’s name for a minimum of 15 years before a rollover is allowed.

2. 5-Year Holding Rule for Funds. Only contributions (and any associated earnings) that have been in the 529 account for more than 5 years are eligible for the rollover. Recent contributions of less than 5 years and the associated earnings aren’t permitted.

3. Lifetime Rollover Limit: $35,000 per Beneficiary. You can roll over a maximum of $35,000 total over the beneficiary’s lifetime.

4. Annual Roth IRA Contribution Limit Applies. You can only roll over up to the annual Roth IRA contribution limit in any given year. In 2025, that limit is $7,000 for individuals under 50 years old and $8,000 if age 50 or older.

5. Beneficiary Must Have Earned Income. The beneficiary needs to have earned income at least equal to the rollover amount.

6. Trustee-to-Trustee Direct Transfer Required. The rollover must be executed as a direct trustee-to-trustee transfer—you cannot withdraw 529 funds personally and then deposit them into a Roth IRA.

7. Roth IRA Income Limits Are Waived. If you're rolling over from a 529 plan, the usual Roth IRA income restrictions do not apply.

8. Beneficiary Must Be the Same Person. The Roth IRA must be in the same person’s name as the beneficiary of the 529 plan. You cannot roll the funds into someone else's IRA.

There are still a few details to keep in mind. Some states may not treat 529-to-Roth IRA rollovers as tax-free, so it’s worth checking your state’s rules. In addition, the IRS hasn’t provided complete guidance yet on certain situations, like what happens if the 529 beneficiary changes. As with any new rule, it’s best to stay informed and work with a trusted advisor to make sure you’re getting the most benefit while avoiding surprises.