Tax Planning 

Consider a Roth IRA Rollover for an Overfunded Section 529 Plan

Jun 3, 2024

Bradford Tax Institute 

Section 529 college savings plans are a great way to help pay for a child’s or other family member’s college education. 

Contributions are not federally tax-deductible (they are deductible in many states), but they grow federally tax-free and can be withdrawn tax-free to pay for higher education expenses (up to $10,000 can also be withdrawn tax-free to pay for K through 12 school tuition or to pay off school loans).

But what happens if you establish and fund a Section 529 college savings plan for a child, grandchild, or other family member and he or she doesn’t use all the money or decides not to go to college at all? What do you do with the money in an overfunded 529 plan?

If you withdraw the money and use it for non-education purposes, you must pay regular income tax plus a 10 percent penalty on the earnings (but not on your original contributions).

If you want to keep tax-free treatment for withdrawals, you can change the Section 529 plan’s designated beneficiary to another qualified family member, such as another child or grandchild. Alternatively, you can roll over the money to the Section 529 account of another qualified family member.

But now in 2024, as a result of the SECURE 2.0 Act passed in 2022, you have yet another alternative: roll over the money into a Roth IRA for the original beneficiary. You can transfer up to $35,000 to such a Roth IRA tax-free. 

When the beneficiary turns 59 1/2, he or she can withdraw any of the money tax-free for any purpose. By that time, the Roth IRA could be worth hundreds of thousands of dollars.

Complex rules apply to such rollovers, and they require long-range planning.

Section 529 to Roth IRA Rollover Rules

All the following rules apply to Section 529 to Roth IRA rollovers:

Roth IRA alignment. The Roth IRA must be registered in the name of the beneficiary of the 529 plan.1 In other words, you can’t roll over the 529 money into the 529 owner’s Roth IRA.

Fifteen-year rule. The 529 plan must be held for the designated beneficiary for at least 15 years before you can use the Roth IRA rollover.2 This won’t pose a problem if, as is often the case, the plan was established when the child was very young.

Five-year rule. The amount transferred must come from contributions (and earnings attributable to such contributions) made to the 529 account at least five years prior to the date of the transfer.3 For example, if a rollover is done on November 1, 2024, you can roll over no more than the account balance on November 1, 2019.

Because of this rule, it is important that you keep all records of your contributions and earnings for all Section 529 accounts.

Annual rollover limit. The maximum annual amount that can be rolled over to the Roth IRA is limited to the annual amount that can be contributed to an IRA for the year.4 For 2024, the IRA contribution limit is $7,000 ($8,000 if the beneficiary is age 50 or more). Thus, only $7,000 can be transferred to a Roth IRA in 2024 ($8,000 for older beneficiaries).

Moreover, the annual amount eligible for rollover is reduced by any contributions the beneficiary makes to a traditional or Roth IRA on his or her own.5 For example, if a beneficiary contributes $2,000 to her traditional IRA in 2024, only $5,000 can be rolled over from a 529 account to her Roth IRA.

The annual amount eligible for rollover is also limited to no more than the beneficiary’s earned income from employment for the year. If the beneficiary lacks earned income, such a rollover isn’t possible. Thus, no rollovers are possible for a child or other beneficiary who isn’t working.

On the other hand, unlike regular Roth IRA contributions, rollovers to Roth IRAs from 529 plans are not subject to income limitations.6 So the beneficiary can earn over the Roth IRA modified adjusted gross income contribution limit ($161,000 for singles, $240,000 for marrieds, in 2024) and still benefit from a rollover.

$35,000 contribution limit. The total amount that you can transfer from your 529 accounts to all Roth IRAs is limited to $35,000 per beneficiary, not adjusted for inflation.7 Since no more than $7,000 can be transferred each year, it will take a minimum of five years to roll over $35,000. This will require long-term planning.

Direct transfer rule. The funds must go directly from the 529 plan custodian to the Roth IRA trustee. The beneficiary cannot have custody of the money at any point during the transfer.8 This differs from Roth conversions, where the funds are paid to the Roth IRA owner, who then has 60 days to deposit them to the Roth IRA.

Example. Art and Louise established a 529 account for their daughter Megan in 2000, a year after she was born. But after graduating from high school in 2017, Megan decided she didn’t want to go to college and became a chef instead, working at a series of restaurants.

By 2024, the 529 account holds $40,000. Art and Louise decide to roll over the money into a Roth IRA for Megan. Since the account was established over 15 years ago, they can start in 2024.

Megan earns $60,000 per year, so they can roll over up to $7,000 each year into the account tax-free (provided Megan doesn’t fund her own IRA).

By 2029, they roll over the maximum $35,000 allowed.

If the money in this account earns a modest 6 percent per year, by the time Megan reaches age 59 1/2 and can make tax-free withdrawals of the earnings, it will be worth over $200,000.

Unanswered Questions

There are some questions about how these rollovers work that have to be resolved by the IRS—for example:

  • What happens if a 529 account is transferred to a different beneficiary? Can you still do a Roth IRA rollover to the new beneficiary?
  • If a rollover is allowed after a 529 account is transferred to a different beneficiary, does the 15-year holding period begin again as of the date of the transfer? 

The IRS promises to provide guidance on these questions.


Here are four takeaways from this article:

  1. Starting in 2024, money in a Section 529 college savings plan that will not be used for education expenses can be rolled over tax-free into a Roth IRA for the benefit of the 529 account beneficiary.
  2. A maximum of $35,000 can be rolled over into the Roth IRA, but only a maximum of $7,000 per year ($8,000 for beneficiaries over 50 years old). Annual contributions also are limited to the beneficiary’s earnings from employment and reduced by any IRA contributions made by the beneficiary.
  3. The Section 529 account must have been in existence for at least 15 years before a rollover to a Roth IRA can commence. Only funds in the account for more than five years can be transferred to the Roth IRA.
  4.  Section 529 plan to Roth IRA rollovers may be taxed by some states, such as they are by New York.


The information contained in this post is for general use and educational purposes only.  However, we do offer specific services to our clients to help them implement the strategies mentioned above.  For specific information and to determine if these services may be a good fit for you, please select any of the services listed below. 

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