Leftover 529 Money? The Roth IRA Rollover Rule That Can Turn College Savings Into Retirement Savings

A 529 plan can be a great tool for funding an education, but some parents realize they put too much into this account after a child receives a scholarship or expenses aren’t as high as expected. That money can now be used for another savings goal.

A rule from the SECURE 2.0 Act passed in 2022 lets some families roll their 529 plan funds into a Roth individual retirement account (IRA) in the name of the 529 plan’s beneficiary.

How the 529-to-Roth IRA rollover rule works

This rollover rule lets you move up to $35,000 from a 529 plan to a Roth IRA for the intended beneficiary of the plan. The annual limit is $7,500 in 2026 for those under age 50 so if you want to roll over the full $35,000, you’ll have to spread the roll overs out over several years. But the beneficiary has to have earned income at least equal to the amount you roll over.

Typically non-qualified withdrawals from the earnings portion of a 529 will incur a 10% penalty and generate taxable income, but this arrangement lets eligible families avoid the 10% penalty and taxes that would normally apply. High earners are allowed to use this strategy even if they wouldn’t normally be eligible for a Roth IRA.

The restrictions families need to know before moving money

The 529-to-Roth IRA rollover isn’t for everyone. An important requirement is that your 529 plan must have been open for at least 15 years. You also cannot roll over contributions or earnings on contributions that were made in the past five years.

Another restriction is that the rollover must be direct. Funds move straight from your 529 plan to the beneficiary's Roth IRA. There is no option for an indirect rollover that moves the funds from a 529 plan to your bank account before you put them in a Roth IRA.

Keep in mind that the money you roll over to a beneficiary’s Roth IRA will count toward that beneficiary’s annual IRA contribution limits. If you roll over $7,500 into your child’s Roth IRA for tax year 2026, your child cannot contribute more to their IRA this year.

When this move does and doesn’t make sense

This rollover strategy can make the most sense if all of your children have graduated from college and you are left with a large amount of money in a 529 plan that you aren’t sure what to do with. You can use this plan to max out your child’s Roth IRA, which offers tax-free growth for decades and may free them up to invest more of their money in an employer’s 401(k) or a brokerage account.

Consider speaking with a financial planner or tax professional to discuss your options and see if you are eligible for favorable tax treatment. This option is meant to dispel a common fear parents have about saving too much for college, not for people to overfund a 529 plan just because of a potential conversion to a Roth IRA later down the road.