Turning Unused 529 Funds Into a Roth IRA

Starting in 2024, a new rule allowed certain unused 529 college savings funds to be rolled into a Roth IRA for the same beneficiary.
It is a way to keep leftover education money working for the future instead of sitting unused.

Here’s how it works:

• The 529 plan must be at least 15 years old.

• The transfer must be a direct trustee-to-trustee transfer to a Roth IRA maintained for the benefit of the designated beneficiary.

• The rollover is limited to the annual Roth IRA contribution limit each year and capped at $35,000 total per beneficiary.

• Contributions (and earnings on those contributions) made to the 529 plan within the last 5 years are not eligible for rollover.

This change gives families a new way to extend the value of their education savings—especially if a child or grandchild didn’t use all their 529 funds for school. It can also help young adults start building retirement savings early.

If you are considering a rollover, it is important to confirm that your 529 plan allows this option and that the transfer follows the IRS timing and contribution rules.

Each week, I share a clear, bite-sized tax insight straight from my continuing education so you can stay informed without sifting through tax changes.

Next week, we provide an explanation to a popular question: What is a backdoor Roth?

Thanks for reading,

Brandy Sparkman, EA

I’ll keep learning so you can stay focused on what you do best.

See you next week for another Tax Minute.