529 to Roth IRA rollovers simplified
Transferring funds from a 529 account to a Roth IRA can benefit some families, but it’s essential to understand the intricacies before acting.
Why this matters: Roth IRA rollovers may solve the issue of what to do with unused funds
Rolling over funds into a Roth IRA without facing significant tax penalties can alleviate concerns about saving for college with a 529 account. This is particularly relevant for those worried about what to do with unused funds if a student receives a scholarship or chooses not to pursue higher education. A 2022 provision allows you to transfer those unused funds, giving your student a head start on their future retirement.
Consult with a tax advisor before acting to discuss tax implications
A 529-to-Roth IRA rollover may have tax consequences. You should speak with a qualified tax professional before making a 529-to-Roth IRA rollover.
Eligibility for a tax-free 529 to Roth IRA rollover
If the following criteria are met, you can make a tax-free rollover from a 529 account to a Roth IRA.
The Roth IRA must belong to the 529 plan’s beneficiary (not the account owner).
The beneficiary of the Roth IRA must meet standard IRA compensation eligibility requirements. Confirm this with a financial or tax advisor.
The 529 account must have been open for at least 15 years. Accounts created within 15 years of the rollover date do not qualify.
Changes to the 529 account (such as owner transfers, beneficiary updates, or rollovers between plans within the past 15 years) may impact eligibility. Always check with a tax professional before proceeding.
Which 529 funds qualify for rollovers, and how much can I roll over?
Only funds contributed to the 529 account more than five years before the rollover date, along with their earnings, qualify for tax-free rollovers.
The annual limit for how much can be moved from a 529 plan to a Roth IRA is limited by the IRA contribution limit for the year, including all funds contributed from outside the plan.
The contribution limit for tax year 2025 is $7,000 if the Roth IRA account owner is under 50. The limit increases to $8,000 if the account owner is 50 or older.
You may only roll over a lifetime maximum of $35,000 from a 529 to a Roth IRA per beneficiary.
How to complete a 529 to Roth IRA rollover
You must roll the funds directly from your 529 into a Roth IRA. You can't simply take a distribution (i.e., a check) and deposit it into a Roth IRA.
GET or WA529 Invest to Roth IRA rollover
Use this form to initiate a full or partial direct rollover from your GET or WA529 Invest account to an existing Roth IRA account established for the Student Beneficiary.
Options other than Roth IRA for funds if plans change
Beyond rolling funds into a Roth IRA, you have options if your student doesn’t use all their GET or WA529 Invest funds.
You can keep the money in the account if your student decides to continue their education.
You can change the beneficiary on the account to another family member.
You can even hold on to the account and use the funds for your future grandchildren’s education.
If these options don’t work for you, you can always take a non-qualified withdrawal that includes accumulated earnings. Keep in mind that non-qualified withdrawals are subject to federal taxes and penalties.