Turning College Savings into Retirement Security: The 529-to-Roth IRA Rollover Rule | Allworth Financial

Head of Wealth Planning, Victoria Bogner, goes over the new 529-to-Roth IRA rollover rule. 

What if I told you the IRS is now letting families turn leftover college savings into tax-free retirement money? No penalties, no federal taxes, and, well… minimal catch?

Thanks to a provision in the SECURE 2.0 Act, you can now roll up to $35,000 from a 529 plan into a Roth IRA for the plan’s beneficiary. It’s a once-impossible move that finally gives families a way to pivot unused education savings into long-term financial advantage. For clients thinking ahead, this is a win-win for multigenerational planning.

Of course, this isn’t a free-for-all. Here are the key guardrails to be aware of:

1. The 15-Year Rule – The 529 must be open for at least 15 years before you can move a dime. Resetting the beneficiary resets the clock.
2. No Recent Contributions Allowed – Contributions (and their earnings) made within the last 5 years are not eligible for rollover.
3. Earned Income Required – The beneficiary must have earned income (W-2 or self-employed) equal to or greater than the amount being transferred each year.
4. Annual Contribution Limits Still Apply – The rollover counts toward the beneficiary’s Roth IRA annual contribution limit.
5. Trustee-to-Trustee Only – The rollover must go directly from the 529 to the Roth IRA.
6. One $35,000 Cap—for Life – Once that cap is hit, that’s it.

Let’s ground this with a real-life scenario:

Meet Emma. Her parents saved heavily in a 529, but she landed a full scholarship and didn’t touch much of it. By 2025, she’s out of college, making $60,000, and the 529 still has $40,000 left, $32,000 of it contributed over five years ago.

- In 2025, Emma earns enough to roll $7,000 into her Roth IRA.
- She repeats this each year through 2030, hitting the $35,000 cap.
- Assuming modest 6% growth, that $35,000 turns into over $230,000 by the time she’s 65.

All from “extra” money that could have gone unused—or worse, been hit with taxes and penalties.

So now you know! This isn’t just a patch for unused college savings—it’s a well-structured planning opportunity. Whether you're a parent, grandparent, or career-changer sitting on a dormant 529, this new rollover rule adds a meaningful arrow to your financial planning quiver.

As always, your Allworth team is here to help you use this proactively, not reactively. Let’s turn those leftover tuition dollars into a long-term tax-free win.

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