Don’t Let Your 529 Go To Waste
If you set up a 529 education plan for your children or grandchildren that is no longer needed for education expenses, there is a new game in town. (Enacted as part of the SECURE 2.0 Act).
You can now transfer money to a Roth IRA for the beneficiary without triggering an income tax (or penalty) on the withdrawal from the 529 — as long as you follow the rules.
The act sets out six key points
1) 15 years
The 529 account must have been opened for 15 years before the rollover can be made. (Note: The statute does not state that the 15-year period is NOT reset by a 529-to-529 rollover or a change in beneficiaries. Will the 15-year count have to start over if there is a 529-to-529 rollover or a beneficiary change?)
2) Past five years
No 529 fund contributions (or the earnings on those contributions) for the past five years can be rolled over to the Roth IRA. (Note: Tracking may be an issue. “529 Plans are not required under existing law to track the information necessary to determine what portion of earnings in the account are attributable to contributions made five years or more prior to the date of distribution,” states a letter sent to the IRS by the Nebraska assistant state treasurer on behalf of the College Savings Plans Network.)
3) Direct transfer
The rollover must be done through a direct trustee-to-trustee transfer from the 529 account to a Roth IRA that is for the designated beneficiary of the 529 account.
4) Yearly maximum
There is a maximum yearly amount that can be rolled over. For 2025 (and 2024), the amount is $7,000 ($8,000 for those age 50 or older). These are the current Roth contribution limits. However, the amount is reduced if the beneficiary himself made contributions to another IRA for the tax year in question.
5) No limit on income
The beneficiary is not subject to an income limitation, in contrast to a contribution an individual can make on his own into a Roth IRA. (This is different from the general rules for a Roth IRA. Under those rules, for example, a single person who has a modified adjusted gross income of $165,000 or more in 2025 cannot contribute to a Roth IRA – ($161,000 for 2024).
6) Total rollover possible? $35,000
There is also an aggregate limit of $35,000 total that can be rolled over from the 529 to the Roth IRA.
What is unknown at this time
At this time, it is unclear whether there is an earned income requirement that applies to Roth contributions. That is, if the beneficiary did not earn $7,000 in 2025 (or 2024), can he roll over $7,000 from the 529 to the Roth? See Fidelity’s “How unused 529 assets can help with retirement planning.”
No IRS guidance yet
The IRS has not issued official guidance or regulations related to the new 529 option as of yet, according to an IRS spokesperson.
However, the IRS has noted on its “Instructions for Forms 1099-R and 5498 (2024)” webpage that the rollovers “are reported on Form 5498 as Roth IRA contributions and not as rollover contributions.”
Example and note of caution
If you are considering a 529 Roth IRA rollover, you will need a form from the trustee of your 529 account. Look at the example of a Fidelity Investments form for a 529 account transfer to an account outside the Fidelity system.
The form includes a cautionary paragraph that is worth noting: “It is your responsibility to ensure that your withdrawals comply with IRS requirements. Non-qualified withdrawals could trigger IRS fees or penalties. At the end of each tax year, Fidelity will send a 1099-Q to the IRS, and to the participant or beneficiary, reporting any withdrawals. You may want to consult a tax advisor.”
Look online for the yet to be updated IRS Publication 970 for use with 2024 tax returns; see Chapter 7. Another resource is The Tax Adviser article “A retirement savings head start: 529-to-Roth rollovers.”
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