On December 23rd, 2022, congress passed the SECURE 2.0 Act. Among the many changes, one of them had to do with 529 plans. You can now make tax-free and penalty-free rollovers from a 529 plan to a Roth IRA.
This became effective 1/1/2024. Before this, if you wanted to take a non-qualified withdrawal from a 529 plan (using the money for something outside of school expenses) the gain was subject to income tax and a 10% penalty. It’s similar to taking a withdrawal from an IRA.
If you have unused money in a 529 plan, it can be rolled over to a Roth IRA for the beneficiary of that 529 plan—tax and penalty-free. The added benefit is tax-free growth and tax-free distributions when they take money out down the road.
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As a parent or guardian, planning for your child’s future education is a critical financial decision that can have a significant impact on their long-term success. One popular way to save for college expenses is through a 529 plan, a tax-advantaged investment account specifically designed for education costs.

However, what happens if your child decides not to attend college, or if you end up with leftover funds in the 529 plan once they have graduated? Fortunately, there is a way to rollover a tax-free 529 plan to a Roth IRA, providing you with added flexibility and potential tax benefits in your financial planning.

A Roth IRA is a retirement account that allows your investments to grow tax-free, and withdrawals in retirement are also tax-free. By rolling over funds from a 529 plan to a Roth IRA, you can continue to save for your retirement while also reaping the benefits of tax-free growth.

To execute a tax-free 529 plan to Roth IRA rollover, there are a few important guidelines to keep in mind. First, ensure that the beneficiary of the 529 plan can be changed to the owner of the Roth IRA, often a parent or guardian. Next, coordinate with your financial institution to transfer the funds from the 529 plan to the Roth IRA without incurring any tax penalties.

It’s important to note that there are certain limitations and restrictions when it comes to rollovers between different types of investment accounts. For example, you can only rollover up to $10,000 from a 529 plan to a Roth IRA tax-free, and the funds must be used for qualified education expenses. Additionally, any earnings on the rollover amount may be subject to income tax and a 10% penalty if not used for education expenses.

Overall, a tax-free 529 plan to Roth IRA rollover can be a useful strategy for maximizing your financial resources and saving for both education and retirement goals. By understanding the rules and regulations surrounding these types of rollovers, you can make informed decisions that benefit both you and your child’s future financial well-being.

In conclusion, if you find yourself in a situation where you have excess funds in a 529 plan or your child decides not to attend college, consider the option of rolling over those funds to a Roth IRA. This can provide you with added financial flexibility and tax benefits, helping to secure your financial future for years to come.