Are you worried your kid will be too educated or too set up for retirement?
When it comes to both, you truly can’t have too much of a good thing!
Thankfully, since 2024, you can move leftover 529 college money into a Roth IRA for the same person, tax free, up to a $35,000 lifetime cap IF you follow the rules.
Here’s the playbook.
What it is, in plain English
A 529-to-Roth rollover turns unused education savings into a retirement head start.
It must go straight from the 529 to a Roth IRA in the beneficiary’s (your kid’s) name, and it counts toward that person’s annual Roth IRA limit. Simple enough.
For 2025, that limit is $7,000 or $8,000 if you are 50 or older.
Why it matters
Parents fear “over-saving” in a 529. Now, fear not! The backup plan is strong.
Not this backup plan. Can’t say I’ve seen it. 18% on Rotten Tomatoes FYI.
Instead of facing taxes and penalties for non-education spending, the beneficiary can drip money into a Roth over several years and let it grow tax free for decades.
It’s a clean win if you have old 529 dollars and a working beneficiary (AKA your kid).
Rules you can’t skip
The 529 must be open 15+ years.
Only contributions, and their earnings, that are at least 5 years old can move. Newer dollars do not qualify.
Use a direct trustee-to-trustee transfer into a Roth IRA owned by the beneficiary. No detours. Do not pass Go.
The rollover uses up that year’s Roth IRA contribution room and is part of the $35,000 lifetime cap.
The beneficiary needs earned income at least equal to the rollover for that year, because Roth contributions require compensation.
Changing beneficiaries may reset the 15-year clock. The IRS has not issued clear rules there, so play it safe.
🚨State tax warning🚨
Federal rules say tax free. Some states do not conform. California currently treats a 529-to-Roth rollover as taxable and adds a 2.5% extra tax on the earnings portion. Whoa! Rude!
Several states can also “recapture” past 529 deductions. Check your state before you move a dollar.
EXACTLY how to do it
Check the clocks. Confirm the 529 open date and which contributions are 5+ years old. If the beneficiary changed, assume the 15-year clock may have restarted.
Open the right Roth. If the beneficiary (your kid) does not have a Roth IRA, open one in their name. The Roth owner must match the 529 beneficiary.
Verify earned income. Make sure the beneficiary has wages or self-employment income at least equal to the planned rollover this year.
Pick the amount. Use the annual Roth limit minus any other IRA contributions the beneficiary will make. Example: if they plan to contribute $2,000, the rollover max is $5,000 in 2025.
Request a direct rollover. Call the 529 provider and ask for a 529-to-Roth IRA transfer. Keep it direct, label it correctly, and repeat each year until you hit the $35,000 cap or the account is empty.
Quick example
Alex’s 529 was opened in 2009.
Alex works and earns $60,000.
There is $18,000 of “old” 529 money.
In 2025, Alex can roll $7,000 to a Roth IRA.
In 2026, Alex can roll the next $7,000, then the final $4,000 in 2027.
Simple. Compliant. Powerful. Cool? Yes.
Congrats Alex!
Bottom Line
If you have leftover 529 dollars, this is your Roth runway. Follow the clocks, keep it direct, watch state rules, and let compounding do the heavy lifting.
Congrats! Your kid now educated AND rich - two of the top six things someone can be. Send this newsletter to five friends and I’ll tell you what the other four things are.
