529 to Roth? What to know
529 to Roth? What to know
Suppose you started a 529 for your child on their 1st birthday. Ever year, you put more and more into it. As your child grew, so did the 529. It grew from your contributions, and it grew from the investments. Your son or daughter is now on the verge of entering their last year of high school and their 529 has grown to a little over $100k.
This is fantastic, as it has the potential to pay for a significant portion of their tuition, depending on where they attend. However, a thought enters your mind… what if they don’t end up needing it all? What if they receive a scholarship, or decide to start with community college or decide to go to a trade school? To be clear, 529’s can be used for both community college and trade school, but these would reduce the overall cost significantly.
The good news is that you can still use that account to benefit your child, even if it’s not being used for higher education. You can use it to fund a Roth IRA for them. You wanted to help with their education, and you may end up helping with their retirement as well.
So how does it actually work? There are some strict rules to be aware of:
$35,000 is, as of 2025, the maximum amount that can be rolled into the beneficiaries Roth IRA from the 529
The amount per year you can roll to their Roth IRA must be within the contribution limits for that year. Using 2025 as an example, only $7,000 could be rolled to the Roth IRA. If your child is making their own Roth IRA contribution, the total of their contribution and your contribution from the 529 cannot exceed that annual limit. In other words, it could take several years to move the 529 assets into the Roth IRA, depending on how much you’re rolling over.
The beneficiary must have earned income. To contribute to a Roth IRA, you must have earned income, in an amount equal to or greater than the contribution amount. So, for 2025, to contribute $7,000, you must have at least $7,000 of earned income. Same exact rules apply for the 529 to Roth rollover. The beneficiary of the 529 must have earned income to receive a Roth contribution from the 529
The 529 must have been in existence for at least 15 years
Any contributions made to the 529 in the last 5 years (including earnings from those contributions) cannot be rolled to a Roth IRA.
If the above rules are followed, any unused 529 assets can still benefit your child. This helps reduce a worry some have about overfunding a 529.
Here are a few other strategies to consider for unused 529 assets:
Changing the beneficiary to an eligible family member. Do you have more than one child? Do you have a niece of nephew needing some help with college? These are examples of people you could change the beneficiary to
If part of the 529 is unused because your child receives a tax-free scholarship, the amount of the scholarship can be withdrawn without penalty. However, tax would still be owed on any earnings
Fund your own education. If there is any extra higher education you’d like to partake in, you can change the beneficiary to yourself and use the assets for that
$10,000 of a 529 can be used to pay off the beneficiaries’ student loans. Is there an eligible family member who you’d like to help with their student loans? This is yet another option.
Worst case scenario, if there is no use for the remaining assets, you’ve already rolled the maximum $35,000 to the beneficiaries’ Roth IRA, and there are no eligible family members to change the beneficiary to, you can withdraw the assets. The earnings will be taxed and penalized, so this should be a last resort. But if there is no other option, this can still be done.
Main Takeaway:
Funding a 529 for your child is one of the greatest gifts you can give them, and can help them immensely when the time comes. However, if you end up overfunding it, it’s good to know that you have several options in regard to the remaining assets. Rolling up to $35,000 over to a Roth IRA for the beneficiary is one option worth taking a look at.
Ryan Page, CFP®, MBA®
Office & Text:720-826-1092
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
