Rollover Unused 529 Funds to a Roth IRA

The SECURE Act 2.0 created a provision to allow people to rollover unused funds from a 529 college savings account to a Roth IRA.  Starting in 2024, beneficiaries of 529 college savings accounts are permitted to do a tax-free rollover to a Roth IRA.  Prior to this provision, if 529 funds were not used for educational purposes, earnings withdrawn were subject to income tax and a 10% penalty. 

There are some rules and limitations:

• The 529 account must have been open for at least 15 years. No word from the IRS if the 15-year period resets if the beneficiary is changed. 
• The rollover cannot include any contributions made in the last 5 years.
• The total amount rolled over cannot exceed the annual IRA contribution limit ($7,000 for 2024 and $7,000 for 2025). The annual amount eligible for rollover is reduced by any actual traditional or Roth IRA contributions made for that year.
• There is a lifetime limit of $35,000 per beneficiary on rollovers, but this can be maxed out for multiple beneficiaries if they each have a 529 account.

In 2025, you can potentially double up by making a rollover for both 2024 and 2025, but only if the 2024 rollover is completed by April 15th, 2025. While the law did not specify this strategy, the IRS has stated in the instructions for Forms 1099-R and 5498 “Also enter a rollover contribution to a Roth IRA from a long-term section 529 qualified tuition program that was made after December 31, 2023, and on or before April 15, 2025, that is designated for 2024.”¹

If you have questions about this strategy, 529 Plans, Roth IRAs, or other wealth planning strategies, please reach out to schedule a time to talk.

^{1) https://www.irs.gov/pub/irs-pdf/i1099r.pdf}