I learned something recently that really made me want to tell everybody I know, the fact that the government now allows people with a 529 plan for their child to transfer the money into a Roth IRA account for their beneficiary! Of course, there are some caveats…

 If you haven’t come across it before, a 529 plan is simply a tax-advantaged way to save for higher education. But here’s the kicker: starting in 2024, the government decided to sweeten the deal by allowing certain unused 529 funds to be rolled over into a Roth IRA. That’s right, you can now take what was once “college-only money” and give it a second life as retirement savings for your child (or in some cases, even yourself). Let’s dig into this because, like most good things, the devil is in the details.

What Exactly Is a 529 Plan?

A 529 plan is basically a college savings account wrapped in tax perks. You put after-tax dollars into it, the money grows tax-free, and as long as you use it for qualified education expenses like tuition, fees, books, and sometimes even room and board, you won’t owe taxes when you take it out. Many states also offer a tax deduction or credit on contributions, which makes it even more attractive.

There are two types:

1. Prepaid Tuition Plans – You lock in tuition rates at today’s prices (but these are less common now).
2. Education Savings Plans – More flexible, they let you invest in mutual funds or ETFs, and the account grows based on market performance.

I’ve always thought of 529s as a sort of “forced savings” tool. You tell yourself, “This is for education,” and that makes it less tempting to spend elsewhere. But the problem comes if your child gets a scholarship, decides not to go to college, or you just end up with leftover money. Until recently, that could mean paying taxes and a 10% penalty on earnings for non-qualified withdrawals. Ouch, there must be another way.

The Roth IRA Twist

Enter the SECURE Act 2.0, which changed the game starting in 2024. It allows a limited transfer of unused 529 funds into a Roth IRA. This is like giving your 529 a second career, retirement savings instead of college savings. Sounds perfect, right? Well, hang on, because there are some conditions that must be mentioned.

The Rules of the Rollover

• The 529 must be at least 15 years old. You can’t just open one, get a tax deduction, and then shuffle the money into a Roth.
• The Roth IRA must be in the name of the 529 beneficiary. If you opened the account for your child, the money goes into their Roth, not yours (unless you change beneficiaries to yourself, that’s a whole different set of rules).
• There’s a $35,000 lifetime limit. That’s the maximum you can move from a 529 into a Roth IRA per beneficiary.
• Annual Roth contribution limits still apply. For 2025, that’s $7,000 per year (or $8,000 if you’re 50+). The rollover counts toward that annual contribution.
• Income limits don’t apply. Normally, Roth IRAs phase out for high earners, but this 529-to-Roth transfer bypasses those restrictions. That’s a huge perk.

Why This Matters

I’ll be honest, college costs scare me more than an unexpected IRS letter. They rise faster than inflation, and nobody knows exactly what higher education will look like in 10 or 15 years. Having the Roth IRA backup plan gives parents (and grandparents) peace of mind. It means your savings won’t go to waste, even if college plans change.

For your child, it’s like giving them a head start on retirement. Imagine being 25 years old and already having a Roth IRA funded with tens of thousands of dollars. The compounding alone could be life-changing. If they don’t touch it until age 65, it could easily grow into hundreds of thousands of tax-free dollars. That’s the kind of gift that makes you the favorite parent, or grandparent, forever.

Things to Consider Before You Jump In

1. College Still Comes First
   Remember, the main point of a 529 is education. If you know your child will attend college, don’t hold back contributions just because you’re eyeing a Roth rollover. Tuition bills can eat through funds faster than you’d expect.
2. Flexibility Matters
   You can change the beneficiary on a 529 to another child, a grandchild, or even yourself if you decide to go back to school. This could be useful if you have multiple kids and want to keep the rollover option alive.
3. Watch Out for the 15-Year Rule
   If you’re opening a 529 with the intention of someday rolling it to a Roth, you’ll need to start early. A brand-new 529 opened today won’t be eligible until 2040.
4. State Tax Considerations
   Some states may have “clawback” provisions if you take advantage of deductions and then roll the money over. Always check your state’s rules.
5. Keep Contribution Records
   Only contributions and earnings older than 5 years are eligible to be rolled over into a Roth. Good record-keeping will help you avoid headaches down the line.
6. Don’t Forget Financial Aid Impacts
   529s are considered parental assets for FAFSA purposes. That’s usually better than having savings in a child’s name, but it still matters for aid eligibility.

My Take

If I could go back and give my younger self advice, I’d say: open a 529 early, contribute regularly, and treat it like an education safety net with a built-in escape hatch. Even if your kiddo doesn’t use all of it for college, the Roth rollover option means you’ve still given them a gift that keeps on giving. That’s a huge gift by itself.

For retirees like me, this is also a clever estate-planning move. You can fund a 529 for a grandchild, and if they don’t need all of it, the leftover money can help secure their retirement someday. That’s a pretty good legacy if you ask me.

Final Thoughts

A 529 plan has always been one of the best ways to save for education, but now with the Roth IRA rollover option, it’s like having two tools in one. You get flexibility, tax advantages, and the comfort of knowing your money will serve a purpose—even if college plans don’t go as expected.

I’ve always believed in planning for the long term, whether it’s retirement or helping the next generation. A 529 isn’t perfect—it has rules, limits, and a bit of fine print—but for families who want to invest in education without fearing wasted savings, it’s one of the best options out there.

Don’t wait until it’s too late, get your financial house in order today!

Happy retirement planning!