Convert a 529 to a Roth IRA
July 14, 2025 • 5 mins
Article Contents
A 529 account helps pay for educational expenses. But what if the beneficiary finishes school — or doesn’t go to college — and has leftover funds in that 529? A few years ago, Congress passed legislation that allows 529 beneficiaries to roll those unused dollars into a Roth IRA to build retirement savings.
What Is a 529?
A 529 plan is an investment account that helps you save for your child’s education — or a grandchild’s, or your own. The money grows tax-free, allowing you to reach savings goals more quickly.1
The beneficiary can withdraw money tax-free for any qualified educational expense.
You can use a 529 plan to save for college, graduate school, or an apprenticeship program. It can also be used to pay tuition for an elementary or secondary school, whether public, private, or religious.
What is a Roth IRA?
A Roth IRA is an individual retirement account that helps you save money for your Golden Years
Money is deducted from your paycheck and directed into your Roth IRA, so you pay income tax on those contributions.
As that money grows, you do not pay income tax on investment gains or the interest you earn. When you turn 59½, you can begin withdrawing funds tax free.
Can you convert a 529 to a Roth IRA?
Yes, if the beneficiary gets a scholarship or decides not to attend college, they might have unused funds sitting in their 529. They can roll those dollars over to a Roth IRA — tax-free and penalty-free — to build their retirement nest egg, although there are specific limits.
This option became available on January 1, 2024, thanks to the SECURE 2.0 Act, federal legislation designed to help Americans save money.
529 plans rise in popularity
After federal legislation enabled 529-to-Roth IRA conversion, 76% of parents reported they were now more likely to open a 529 account for their child’s education, according to a survey of 1,100 adults by Saving for College.
Among families who already had a 529 account, 57% said the legislation made them want to increase their 529 contributions.
529 to Roth IRA rules
Before rolling over funds from your 529 to a Roth IRA, make sure you understand the rules. Otherwise, you could pay penalties.
Funds from a 529 must be rolled over into the beneficiary’s Roth IRA. Let’s say that, when your daughter was young, you set up a 529 to save for her college tuition. She just graduated from college but there’s some money left in that 529 that she didn’t spend.
If either the account owner (you) or beneficiary (your daughter) spends it on noneducational expenses, that person will need to pay income tax and a withdrawal penalty. A better option: your daughter can establish her own Roth IRA and roll those leftover dollars into it to jumpstart her retirement savings. (You are not the 529 beneficiary, so you cannot roll that money into your Roth IRA.)
To roll over funds without paying taxes and penalties, the 529 account must have been open for 15 years or longer. If you decide to change beneficiaries, such as from your daughter to your grandson, the clock turns back to Year One.
Also, the beneficiary can’t roll over contributions or earnings on contributions that were made within the last 5 years. Any money rolled over must have been in the account for at least 5 years.
The IRS has set annual limits for the amount someone can roll over from a 529 plan into a Roth IRA. There is also a lifetime limit of dollars you can roll over.
The beneficiary’s earned income for the year needs to equal (or exceed) the amount rolled over from the 529 to the Roth IRA that year.
Finally, depending on where you live, you may need to pay state income tax on the rollover distribution. California, for example, taxes it as income at 2.5%.
Annual limits
After paying for school, the beneficiary can roll over any unused 529 funds to a Roth IRA. (The rollover must come from a 529 account that has been open for at least 15 years.)
The IRS sets annual contribution limits to Roth IRAs, and that includes rollovers from 529 plans. As long as the rolled-over dollars don’t exceed the IRS’s annual limits, they are tax-free and penalty-free.
The most you can roll over annually depends on your age.
- Beneficiaries under 50: $7,000 each year or the beneficiary’s earned income for the year, whichever is less.
- Beneficiaries 50 and up: $8,000 each year or the person’s earned income for the year, whichever is less.
These are the limits for 2025, but they could change in the coming years, so always check with your financial advisor.
Lifetime limits
There is also a lifetime rollover limit of $35,000. You must stay within the annual limit for your age group. Someone under age 50, then, could roll over $7,000 each year.
Let’s say your parents set up a 529 for you when you were a kid. You’re now 32 years old, with your schooling behind you, and you have $20,000 remaining in your 529. You can roll over the entire amount to a Roth IRA — but not all at once. You could start by rolling over $7,000, which is the annual IRS limit. The next tax year, you could roll over another $7,000. The tax year after that, you could transfer the remaining $6,000.
To transfer funds, the beneficiary must have earned income that is equal to (or more than) the rollover amount.
When can a 529 be converted to a Roth IRA?
You must wait until your 529 account has been open for 15 years before rolling it over to a Roth IRA. Otherwise, you’ll pay taxes and penalties. Check your account statement for the account creation date.
While you don’t want to roll over funds too early, you also don’t want to wait too long. Why? Because as your earnings accumulate, your account balance will climb in value. At a certain point, your 529 may exceed $35,000, the lifetime contribution limit. If your 529 grows to $80,000, you’ll only be able to roll over $35,000 (within the rules).
If that happens, you do have other options. You could pay off student loans, for example, or change your 529 account’s beneficiary so a family member can use the remaining funds for their own education. You could also liquidate your 529 account, although you’ll pay income tax and a 10% penalty.
How to convert a 529 to a Roth IRA
To convert a 529 to a Roth IRA, you’ll need to open a Roth IRA account (if you don’t already have one). The beneficiary of the 529 must be named as the owner of the new Roth IRA.
Next, contact your plan provider about initiating a transfer. Visit their website or call them to ask how to roll over funds from the 529 to the Roth IRA account. You will likely need to fill out some paperwork
Be sure to initiate a direct transfer, with funds moving directly from the 529 to the Roth IRA. If you withdraw the funds from the 529 with the intent of then contributing that amount to the Roth IRA, that withdrawal will be deemed unqualified. That means you’ll pay tax and a penalty on it.
If you have questions, speak to your financial advisor.
Sources:
IRS, “529 Plans: Questions and Answers,” accessed June 26, 2025.
Saving for College, “What Is a 529 Plan?” May 5, 2025.
IRS, “Payroll Deduction IRA,” accessed June 26, 2025.
Kiplinger, “Roth IRAs: What They Are and How They Work,” updated May 29, 2025.
SmartAsset, “6 Advantages of Roth IRAs: What You Need to Know,” updated November 20, 2024.
US News & World Report, “10 Reasons to Save for Retirement in a Roth IRA,” January 31, 2024.
The Tax Advisor, “A retirement savings head start: 529-to-Roth rollovers,” July 1, 2024.
Kiplinger, “Tax Tips for Transferring Excess 529 Plan Funds to Roth IRAs: The Tax Letter,” accessed June 26, 2025.
Saving for College, “What is the Penalty on 529 Plan Withdrawals for Non-Qualified Expenses?” May 12, 2025.
Saving for College, “Who Pays Taxes on Non-Qualified 529 Withdrawal?” March 24, 2025.
Saving for College, “529 to Roth IRA: Rollover Rules, Conversion Guide, and FAQs,” June 9, 2025.
Franchise Tax Board, State of California, “2024 Instructions for Schedule CA (540): California Adjustments – Residents,” accessed June 26, 2025.
IRS, “Retirement topics – IRA contribution limits,” accessed June 27, 2025.
IRS, “Publication 590-A (2024), Contributions to Individual Retirement Arrangements (IRAs),” accessed June 30, 2025.
The Tax Advisor, “A retirement savings head start: 529-to-Roth rollovers,” July 1, 2024.
CNBC, “A key change to 529 plans this year is already triggering parents to save more for college,” October 25, 2024.
This article was created in accordance with the Patelco editorial policy.
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