529 to Roth IRA Rollover: Complete SECURE 2.0 Guide for 2025

What Changed Under SECURE 2.0

Before December 29, 2022, families with leftover 529 funds faced an unpleasant choice. They could either change the beneficiary to another family member, pay income tax plus a 10% penalty on the earnings portion when withdrawing for non-educational expenses, or let the money sit unused indefinitely. This “overfunding fear” discouraged aggressive 529 saving, especially when college costs and scholarship outcomes remained uncertain.

Section 126 of the SECURE 2.0 Act changed everything. Effective January 1, 2024, beneficiaries can now roll unused 529 funds directly into their own Roth IRA. The rollover counts as a contribution (not a conversion), the transfer is tax-free at the federal level, and the money begins growing tax-free for retirement.

The provision addresses a real problem. According to the College Savings Plans Network, the average 529 account balance was approximately $27,741 at year-end 2023. Many families, particularly those with multiple accounts from grandparents or those whose children received scholarships, end up with balances they can’t easily use.

But here’s what the headlines missed: this isn’t a retirement planning strategy. It’s an escape hatch. The restrictions are significant enough that financial planning expert Ed Slott warned advisors against overhyping the provision, calling it “no planning panacea.” Understanding exactly how these rules work determines whether this strategy makes sense for your family.

The Five Requirements You Must Meet

The 529 to Roth IRA rollover operates under five interconnected requirements that significantly limit who can benefit and when. Missing any single requirement transforms a tax-free rollover into a potentially taxable non-qualified withdrawal with penalties.

Requirement 1: The 529 Must Be Open at Least 15 Years

The account age requirement is straightforward but restrictive. The 529 plan must have been “maintained for the 15-year period ending on the date of such distribution.” This means accounts opened before January 1, 2009 became eligible on the provision’s January 1, 2024 effective date. For a newborn today, their 529 account won’t qualify until they turn 15 at the earliest.

The clock starts when you open the account, regardless of when you make contributions. Opening a 529 early, even with a token $50 contribution, begins the 15-year countdown.

Requirement 2: Only Contributions Older Than 5 Years Qualify

Recent contributions and their attributable earnings are excluded from rollover eligibility. Only contributions made more than five years before the rollover date can transfer to the Roth IRA. This prevents families from “stuffing” a 529 account right before conversion.

Requirement 3: Annual Limit Matches Roth IRA Contribution Limits

You can’t transfer all $35,000 at once. Annual rollovers are capped at the applicable Roth IRA contribution limit for that year:

The 529 rollover counts against your total Roth IRA contribution limit for the year. If you contribute $4,000 directly to your Roth IRA in 2025, you can only roll over $3,000 from a 529 (assuming you’re under 50).

Requirement 4: The Beneficiary Must Have Earned Income

Just like regular Roth IRA contributions, you need earned income at least equal to your contribution amount. A teenager with a qualifying 529 but only $4,000 in part-time income can roll over just $4,000 that year, regardless of the $7,000 annual limit.

This creates a practical bottleneck. A 15-year-old with an eligible account but no job can’t roll over anything. A college student earning $6,000 from summer work can roll over $6,000. A recent graduate earning $60,000 can roll over the full $7,000.

Requirement 5: Direct Trustee-to-Trustee Transfer Only

The rollover must be executed as a direct transfer from the 529 plan administrator to the Roth IRA custodian. You cannot take a distribution personally and deposit it into a Roth IRA. Taking the money yourself, even temporarily, converts the transaction into a non-qualified withdrawal, triggering federal and state income tax on earnings plus the 10% penalty.

This is the same requirement that applies to 401(k) rollovers and other qualified plan transfers. The money moves directly between financial institutions without touching your bank account.

Understanding the 15-Year Rule

The 15-year account age requirement generates more questions than any other aspect of this provision. Unfortunately, the IRS has provided minimal guidance, leaving families and financial advisors to operate on conservative assumptions.

When Does the Clock Start?

The 15-year period begins when the 529 account is opened, not when you first contribute a meaningful amount. This creates an important planning opportunity: open a 529 account as early as possible, even with a minimal contribution, to start the clock running.

Does Changing the Beneficiary Reset the Clock?

This is the most significant unanswered question. The statute refers to the plan being “maintained for the 15-year period” but doesn’t specify whether the beneficiary must remain unchanged throughout.

The conservative consensus among financial planners, including Michael Kitces and Ed Slott, is to assume that changing the beneficiary resets the 15-year clock. Until the IRS issues guidance confirming otherwise, treat any beneficiary change as starting the countdown over.

This has major planning implications. If you have a 529 for an older child who received scholarships, you might be tempted to change the beneficiary to a younger sibling. Doing so would likely restart the 15-year requirement, delaying rollover eligibility by years or decades.

Does Rolling Between State Plans Reset the Clock?

Better news here. The general industry consensus is that transferring a 529 from one state’s plan to another does not reset the 15-year period. Virginia’s Invest529 explicitly states that changing 529 administrators “does not restart” the 15-year period.

However, the receiving plan won’t have records of your original account opening date. You must maintain documentation proving when the original account was established. Keep your initial account opening confirmation letter indefinitely.

The 5-Year Contribution Seasoning Rule

The 5-year contribution seasoning requirement works independently of the 15-year account age rule. Even if your account is 20 years old, contributions made within the last five years (and their attributable earnings) cannot be rolled over.

How the Rule Works in Practice

Imagine you have a 529 account opened in 2005 with the following contribution history:

In this example, only the $45,000 contributed through 2020, plus its earnings, would be eligible for rollover in 2025. The $15,000 contributed from 2021-2024 must wait until it reaches the 5-year threshold.

Why This Rule Exists

Congress designed the 5-year rule to prevent gaming. Without it, wealthy families could contribute large sums to a 529, immediately roll those funds into a Roth IRA, and effectively bypass Roth IRA income limits while receiving state tax deductions. The seasoning requirement ensures the provision functions as intended: providing an exit for genuinely overfunded education accounts, not creating a new tax loophole.

Why Roth IRA Income Limits Don’t Apply

Here’s where the 529 to Roth IRA rollover becomes genuinely valuable for high-income families. The normal Roth IRA income phase-outs do not apply to these rollovers.

Normal Roth IRA Income Limits for 2025

For regular Roth IRA contributions, high earners face phase-outs:

A single professional earning $200,000 cannot contribute directly to a Roth IRA. Their only options are the Backdoor Roth IRA or Mega Backdoor Roth strategies.

529 Rollover Exception

The SECURE 2.0 provision explicitly exempts 529 rollovers from these income limits. A beneficiary earning $500,000 can still roll over $7,000 from their 529 to their Roth IRA. This creates a legitimate path to Roth IRA contributions for high earners who qualify under all other requirements.

Of course, the beneficiary still needs earned income equal to the rollover amount. The income limit exemption doesn’t waive the earned income requirement. But for young professionals earning well above the Roth IRA phase-out thresholds, this provision offers a valuable opportunity.

State Tax Implications: The Hidden Trap

While the 529 to Roth IRA rollover is tax-free at the federal level, state tax treatment varies dramatically. This is where many families get surprised. Some states require you to pay back tax deductions you claimed years ago. One state treats the rollover as a penalty-worthy non-qualified distribution.

How States Classify 529 Rollovers

States fall into four categories for 529 to Roth IRA rollover tax treatment:

States That Require Deduction Recapture

In recapture states, rolling 529 funds to a Roth IRA triggers the requirement to “recapture” any state tax deductions you previously claimed for those contributions. You must add the previously deducted amount back to your state taxable income in the year of the rollover.

Recapture doesn’t necessarily make the rollover a bad idea, but you need to calculate the net benefit. In many cases, the long-term advantage of tax-free Roth growth outweighs the one-time recapture hit.

California: The Worst Case

California stands alone with the harshest treatment. The state classifies 529 to Roth IRA rollovers as non-qualified distributions, imposing state income tax on the earnings portion plus an additional 2.5% California tax. The California Franchise Tax Board’s Schedule CA instructions explicitly state that “California law does not conform to this federal provision.”

Since California never offered 529 contribution deductions, there’s no recapture issue. But the earnings tax and penalty apply regardless of whether you used an in-state or out-of-state 529 plan.

Recent State Law Changes

Two significant changes occurred in 2024:

Illinois: Enacted SB 3133 (signed August 2, 2024) to treat rollovers as qualified distributions. Illinois account holders can now roll over without recapture concerns.

New York: Passed S.9701/A.10209 (signed September 5, 2024) classifying rollovers as qualified withdrawals. This was a major win for the state’s large 529 participant base.

Three states (Colorado, Missouri, and New Jersey) still have pending or unclear guidance as of November 2025. If you live in these states, consult a local tax professional before proceeding.

How to Execute the Rollover Step by Step

The actual mechanics of a 529 to Roth IRA rollover are straightforward once you understand the requirements. Here’s how to execute one correctly.

Step 1: Verify Your 529 Account Eligibility

Before initiating any transfer, confirm three things:

• Account age: Check your original account opening date. The account must be at least 15 years old on the date of distribution. Most 529 providers now display this date on quarterly statements or online account access.
• Contribution history: Review your contribution records to determine which amounts are at least 5 years old. Only seasoned contributions and their earnings qualify.
• Current balance versus eligible amount: Your rollover-eligible balance may be significantly less than your total balance if you’ve made recent contributions.

Step 2: Ensure the Beneficiary Has a Roth IRA

The Roth IRA must exist before you initiate the rollover. If the beneficiary doesn’t have one, open a Roth IRA at a brokerage like Fidelity, Vanguard, or Schwab. The account can have a zero balance initially.

The Roth IRA must be in the beneficiary’s name. You cannot roll 529 funds into a parent’s Roth IRA or any other person’s account.

Step 3: Contact Your 529 Plan Administrator

Request a direct rollover to a Roth IRA. Each 529 provider has its own process:

Step 4: Complete Required Attestations

All 529 providers require you to certify that you meet the rollover requirements. The IRS hasn’t created a tracking system for 529 rollovers, so providers place eligibility verification responsibility on account owners through attestation language.

You’ll typically certify that:

• The 529 account has been maintained for at least 15 years
• The amount being rolled over excludes contributions from the last 5 years
• The cumulative lifetime rollovers for this beneficiary will not exceed $35,000
• The beneficiary has earned income at least equal to the rollover amount
• The rollover will not exceed the annual Roth IRA contribution limit

Step 5: Track the Transfer

Monitor both accounts during the transfer process. The 529 provider will send funds directly to the Roth IRA custodian. Processing time varies from 3 days to 2 weeks depending on the institutions involved.

Once complete, verify that the Roth IRA custodian coded the deposit correctly as a contribution (not a conversion or rollover from an employer plan).

Step 6: Maintain Documentation

Keep comprehensive records indefinitely:

• Original 529 account opening confirmation (proves 15-year requirement)
• Contribution history statements showing dates and amounts
• Rollover request forms and confirmations
• Form 1099-Q from the 529 plan (Box 4b should be checked)
• Form 5498 from the Roth IRA custodian (shows contribution in Box 10)
• Running total of lifetime rollovers for each beneficiary

Step 7: Track Your Lifetime Limit

The $35,000 limit applies per beneficiary across all 529 plans. If grandparents and parents each have separate 529 accounts for the same child, the combined lifetime rollovers cannot exceed $35,000.

No centralized tracking system exists. You must maintain your own records of all rollovers and ensure family members coordinate if multiple 529 accounts exist for the same beneficiary.

529 to Roth Rollover Eligibility Calculator

Use this calculator to determine when your 529 account becomes eligible for Roth IRA rollovers, how much you can transfer each year, and how long it will take to move the full $35,000 lifetime limit.

Who Benefits Most From This Strategy

The 529 to Roth IRA rollover works best as a contingency plan, not a primary retirement funding strategy. Certain scenarios deliver clear value while others offer marginal benefits at best.

Best Candidates for 529 Rollovers

When the Strategy Offers Less Value

Not every family with a 529 should pursue rollovers. These situations offer minimal or questionable benefits:

Grandparent Planning Opportunities

The FAFSA Simplification Act, effective for the 2024-2025 academic year, eliminated the previous treatment of grandparent-owned 529 distributions as countable student income. This removes a major barrier that previously discouraged grandparent funding.

Grandparents can now contribute aggressively to 529 accounts knowing that:

• Distributions won’t hurt the grandchild’s financial aid eligibility
• Any excess funds can roll to the beneficiary’s Roth IRA
• The $35,000 rollover provides a safety valve if college costs are overestimated

Combined with 5-year gift tax averaging (contributing up to $95,000 at once, or $190,000 for married couples), grandparents can front-load 529 contributions and let compounding work longer while maintaining the rollover escape hatch.

Common Mistakes to Avoid

The combination of incomplete IRS guidance and complex interacting rules creates multiple opportunities for costly errors. Here are the most common mistakes and how to avoid them.

Mistake 1: Taking a Distribution Instead of Direct Rollover

The single most expensive error is taking a 529 distribution personally with plans to deposit it into a Roth IRA. This doesn’t work. The distribution becomes non-qualified the moment funds hit your personal account, triggering federal and state income tax on earnings plus the 10% penalty.

Always: Request a direct trustee-to-trustee transfer. The money moves directly from the 529 administrator to the Roth IRA custodian.

Mistake 2: Exceeding the Annual Roth IRA Contribution Limit

The 529 rollover counts against your total Roth IRA contribution limit for the year. If you contribute $5,000 directly to your Roth and then roll over $7,000 from a 529, you’ve made $12,000 in contributions against a $7,000 limit. That’s a $5,000 excess contribution subject to a 6% annual penalty until corrected.

Always: Coordinate 529 rollovers with direct Roth IRA contributions to stay within annual limits.

Mistake 3: Ignoring the Earned Income Requirement

Having an eligible 529 account doesn’t automatically allow rollovers. The beneficiary must have earned income at least equal to the rollover amount. A college student without summer job income can’t roll over anything that year.

Always: Verify the beneficiary’s earned income before initiating any rollover.

Mistake 4: Rolling Over Recent Contributions

Contributions made within the last 5 years are not eligible for rollover. Rolling them over anyway creates a non-qualified distribution on that portion. Some 529 providers may not have systems sophisticated enough to track contribution ages, shifting the compliance burden entirely to you.

Always: Maintain detailed contribution records and calculate your 5-year-seasoned balance before each rollover.

Mistake 5: Exceeding the $35,000 Lifetime Limit

No centralized tracking system exists for 529 rollovers. If multiple family members have 529 accounts for the same beneficiary, it’s easy to accidentally exceed the $35,000 lifetime cap without realizing it.

Always: Coordinate among all 529 account owners for each beneficiary. Maintain a family-wide tracking spreadsheet.

Mistake 6: Assuming Beneficiary Changes Are Safe

Until the IRS clarifies otherwise, assume that changing a 529 beneficiary resets the 15-year clock. Converting an older sibling’s account to a younger sibling may disqualify it from rollovers for another 15 years.

Always: Consider opening a new 529 account for each child at birth rather than relying on beneficiary changes later.

Mistake 7: Forgetting State Tax Consequences

Federal tax-free treatment doesn’t guarantee state tax-free treatment. Residents of recapture states may owe back previously claimed deductions. California residents face state income tax plus an additional penalty on earnings.

Always: Research your state’s treatment before executing any rollover. Consult a local tax professional if guidance is unclear.