529 to Roth IRA Rollover

A new option for unused 529 plan funds 

While 529 account owners are now allowed to roll over unused 529 assets to a Roth IRA for the beneficiary, subject to certain criteria and limits, please note that Edward Jones does not have the capability to complete this rollover today.

For parents, saving for a child’s education in a 529 education savings account has always come with some questions. What if your child decides not to go to college? Or, what if they receive a sizable scholarship and you end up having more assets than you need in your 529 account?

If you’ve been hesitant to save in a 529 account because you’re not sure if your child will go to college, or if you think you already have more assets in your 529 than you need, a provision in the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0) could help you.

Navigating the benefits of SECURE 2.0 for your unused 529 Plan contributions

Funds withdrawn from a 529 are required to be used for qualified education expenses; otherwise, taxes and penalties could be owed. Even if the withdrawn amount qualifies for a penalty exception (for example, your student earned a scholarship), you still owe taxes on the earnings portion of the withdrawal.

This new law provides some enhanced flexibility for unused 529 assets. 529 account owners can roll over unused 529 assets to a Roth IRA for the beneficiary, subject to certain criteria and limits.

Rules we know for rolling over unused 529 funds to a Roth IRA

Here's some of what we know now (as of April 2025):

• This provision of SECURE 2.0 took effect Jan. 1, 2024.
• The rollover must be into a Roth IRA for the beneficiary of the 529. This person may or may not be the same as the account owner.
• The account must be maintained for a beneficiary for at least 15 years before the rollover distribution is made.
• The contributions (and applicable earnings) being rolled over must have been in the 529 account for at least five years prior to taking the distribution.
• There is a maximum $35,000 lifetime limit per beneficiary.
• The amount rolled over is subject to the annual IRA contribution limits (in aggregate with traditional/Roth IRA contributions). So, if you contributed $2,000 to an IRA and your contribution limit was $7,000, the most you would be able to roll over from the 529 to the Roth IRA in that year is $5,000.
• The beneficiary must have taxable compensation to receive the 529 rollover.
• The income limits that normally apply for Roth IRA contributions are waived.

However, there is an open question regarding the 15-year rule

While we know the account must have been opened for at least 15 years prior to taking the distribution (to be rolled over), it's unclear whether the same 529 beneficiary must be maintained for at least 15 years. We are awaiting further regulatory guidance on this matter.

Additional options for unused 529 funds

There are many options for avoiding federal taxes and penalties on unused 529 funds. They include things such as changing the beneficiary to a sibling who might use the funds or paying off student loans (subject to certain rules and restrictions). A financial advisor can help you understand the options available so you can determine your preferred use for any leftover funds.

How Edward Jones can help

Consult with your Edward Jones financial advisor to determine if or how your education savings strategy should change based on this new law.