If your child earned a scholarship, chose a less expensive school, or simply didn't use all the money in their 529 plan, you might be wondering what to do with the leftover funds. For years, families faced a tough choice: pay a penalty to withdraw the money or leave it sitting in an account with no clear purpose. Starting in 2024, there is a better option. Thanks to a provision in the SECURE 2.0 Act, you can now roll unused 529 money directly into a Roth IRA for your child — tax-free and penalty-free, as long as you follow the rules.
This is a big deal. It means leftover college savings no longer have to go to waste. But the rules are specific, and missing even one of them could cost your family in taxes and penalties. Let's walk through exactly how this works, who qualifies, and what to watch out for.
What the SECURE 2.0 Act Changed
The SECURE 2.0 Act was signed into law on December 29, 2022, as part of the Consolidated Appropriations Act of 2023. Among its many retirement-related provisions, Section 126 created a brand-new way to use leftover 529 plan funds: rolling them into a Roth IRA for the plan's beneficiary.
Before this law, if you pulled money out of a 529 for anything other than qualified education expenses, you owed federal income tax on the earnings plus a 10% penalty. That penalty made many families hesitant to over-save, which sometimes led to under-saving instead. The new rule removes that fear. If your child doesn't need all the 529 money for school, the leftover can help them start building retirement savings early in life.
The provision took effect on January 1, 2024, so families can make these rollovers right now for the 2025 tax year and beyond.
Who Is Eligible for a 529-to-Roth IRA Rollover
Not every 529 account qualifies automatically. Here are the key eligibility rules you need to know.
The 529 Account Must Be at Least 15 Years Old
The 529 plan must have been open for at least 15 years before you can roll any funds into a Roth IRA. This is measured from the date the account was first established, not from the date of the most recent contribution. So if you opened a 529 when your child was born and they are now 18, you have met this requirement with three years to spare.
Important note: The IRS has not yet released final guidance on whether changing the beneficiary of a 529 plan resets this 15-year clock. Many tax professionals expect it does. Until the IRS publishes final regulations, it is safest to assume that switching the beneficiary starts the clock over. If you are thinking about changing the beneficiary to take advantage of this provision, talk to a tax advisor first.
Contributions Made in the Last 5 Years Are Off-Limits
Any contributions (and the earnings on those contributions) made within the last five years cannot be rolled over. This rule is designed to prevent people from gaming the system by quickly funding a 529 just to move money into a Roth IRA. Only contributions that have been in the account for more than five years are eligible.
For example, if you contributed $5,000 in 2021 and $3,000 in 2023, only the $5,000 from 2021 would currently be eligible for a rollover in 2026. The $3,000 from 2023 would need to stay in the 529 until at least 2028.
The Roth IRA Must Belong to the 529 Beneficiary
The rollover must go into a Roth IRA in the name of the person listed as the beneficiary of the 529 plan — typically your child. You cannot roll 529 funds into your own Roth IRA as the account owner or into a Roth IRA belonging to another family member.
This also means the beneficiary must be eligible to have a Roth IRA. They need to have earned income in the year of the rollover, and their modified adjusted gross income (MAGI) must fall below the Roth IRA income limits. For 2025, single filers can contribute the full amount if their MAGI is under $150,000, with a phase-out up to $165,000.
Annual and Lifetime Limits
Congress put clear caps on how much you can move from a 529 into a Roth IRA each year and over a lifetime.
Annual Limit: Tied to the Roth IRA Contribution Limit
Each year, the amount you roll over from a 529 to a Roth IRA counts toward the annual Roth IRA contribution limit. For 2025, that limit is $7,000 for individuals under age 50.
This is a critical detail. If the beneficiary also makes a direct Roth IRA contribution in the same year, the rollover plus the contribution cannot exceed $7,000 combined. For example, if your child contributes $3,000 to their Roth IRA from their summer job earnings in 2025, they can only roll over up to $4,000 from the 529 that same year.
Lifetime Limit: $35,000 Per Beneficiary
There is an overall lifetime cap of $35,000 per 529 beneficiary. Once $35,000 has been rolled from the 529 into a Roth IRA for a given person, no further rollovers are allowed — regardless of how much money remains in the 529 account.
At the maximum annual pace of $7,000 per year, it would take five years to move the full $35,000. That timeline matters for planning. If your child is 18 now and you want to move the full amount, the last rollover would happen when they are around 22 or 23.
Earned Income Requirement Applies
Just like a regular Roth IRA contribution, the beneficiary must have earned income at least equal to the rollover amount for that year. If your child earned $5,000 from a part-time job in 2025, their combined Roth IRA contributions and 529 rollovers for that year cannot exceed $5,000, even though the annual cap is $7,000.
This means a child with no earned income — say, a high school senior who doesn't work — cannot receive a 529-to-Roth rollover that year. They would need to wait until they have a job.
How to Actually Do the Rollover
The process itself is fairly straightforward, but it helps to know the steps ahead of time.
Step 1: Confirm Eligibility
Check that your 529 plan has been open for at least 15 years, that the funds you want to move were contributed more than five years ago, and that the beneficiary has earned income and a Roth IRA (or is ready to open one).
Step 2: Contact Your 529 Plan Administrator
Reach out to the company that manages your 529 plan. Not all plan administrators have built a streamlined process for this yet, so you may need to request a distribution form and specify that it is a direct rollover to a Roth IRA. Ask whether they can do a trustee-to-trustee transfer, which sends the money directly to the Roth IRA custodian. This is the cleanest method and reduces the chance of errors.
Step 3: Open or Identify the Beneficiary's Roth IRA
If your child does not already have a Roth IRA, they will need to open one at a brokerage firm, bank, or other financial institution. Major brokerages like Fidelity, Schwab, and Vanguard all offer Roth IRAs with no account minimums.
Step 4: Complete the Transfer
Work with both the 529 administrator and the Roth IRA custodian to complete the transfer. Keep records of everything: the date, the amount, and confirmation that the 529 contributions being rolled over were made more than five years ago.
Step 5: Report It on Your Tax Return
The rollover should be reported on the beneficiary's federal tax return. The 529 plan will issue a Form 1099-Q, and the Roth IRA custodian will issue a Form 5498. Keep both forms for your records. Because the IRS has not yet finalized all reporting guidance, working with a tax professional for your first rollover is a smart move.
Challenges and Roadblocks to Watch
This provision is genuinely helpful, but there are a few things that can trip families up.
Lack of Final IRS Guidance
As of early 2026, the IRS has issued only Notice 2024-54 with preliminary guidance on these rollovers. Final regulations have not yet been published. That means some gray areas remain, especially around beneficiary changes and the 15-year clock. Until the IRS provides definitive answers, families are operating with some uncertainty.
The Beneficiary-Change Question
If you changed the beneficiary on your 529 plan at any point — say, from an older child to a younger sibling — the 15-year requirement may reset. This is one of the biggest unanswered questions in the current rules. Families who have shuffled 529 beneficiaries over the years should consult a tax advisor before attempting a rollover.
State Tax Implications
Some states offer a state income tax deduction for 529 contributions. If you took that deduction and later roll the funds into a Roth IRA, your state might recapture that tax benefit, meaning you could owe state taxes on the rollover amount. State rules vary widely. Check with your state's tax authority or a local tax professional to understand your specific situation.
Coordination with Regular Roth IRA Contributions
Because the rollover counts toward the annual Roth IRA limit, you need to coordinate carefully. If your child is already maxing out their Roth IRA from their own earnings, there is no room for a 529 rollover that year. Good communication between parent and child is important here.
Low or No Earned Income Years
College students often have limited earned income, which directly caps how much can be rolled over. A student earning $2,000 from a summer internship can only receive a $2,000 rollover that year — well below the $7,000 annual cap. Planning around your child's income trajectory can help you make the most of this benefit.
Why This Matters for Your Family's Financial Plan
Think of the 529-to-Roth IRA rollover as a way to turn leftover college savings into a head start on retirement. A 22-year-old who receives even $20,000 in a Roth IRA has decades for that money to grow tax-free. At a 7% average annual return, $20,000 at age 22 could grow to roughly $300,000 by age 62 — all without owing a single dollar in taxes on the withdrawals.
This also changes how you might think about funding a 529 in the first place. If you have been hesitant to save aggressively because you worry about over-funding, the Roth IRA rollover option gives you a meaningful safety valve. It is not unlimited — $35,000 is the cap — but it is far better than the old choice of penalties or leaving the money stranded.
For families planning for the 2025-26 academic year, this is a good time to review your 529 balances and think about whether you might have leftover funds. If so, you can begin mapping out a rollover strategy now.
The Bottom Line
The 529-to-Roth IRA rollover is one of the most family-friendly provisions to come out of recent tax legislation. It rewards families who saved for college, even if the money wasn't fully used. But the rules are detailed — the 15-year requirement, the five-year contribution rule, annual and lifetime caps, and the earned income requirement all need to line up.
Start by reviewing your 529 account details: when was it opened, when were contributions made, and who is the current beneficiary? Then talk with a tax advisor to make sure a rollover makes sense for your situation. The sooner you understand these rules, the more time you have to plan a strategy that works.
If you are trying to figure out how much your family might need for college in the first place — or how leftover 529 funds fit into a bigger financial picture — CollegeLens can help you build a personalized plan. Our tools give you clear, school-specific cost estimates so you can save with confidence and know exactly where you stand.
— Sravani at CollegeLens