The 529-to-Roth Rollover: Turn Up To $35,000 of Leftover College Money Into Tax-Free Retirement

If you have a 529 college savings plan with leftover money, the IRS now lets you move up to $35,000 of it into a Roth IRA without taxes or the usual 10% penalty on non-qualified withdrawals. That is the 529-to-Roth rollover, and it turned on for the first time in January 2024 thanks to SECURE 2.0. If your kid got a scholarship, skipped college, or simply did not burn through the account, you no longer have to choose between paying tax to get the money out and letting it sit forever.

The buried benefit, in one paragraph

A 529 plan was designed as a one-way street: contribute after-tax dollars, grow tax-free, spend on qualified education. Anything left over got hit with income tax plus a 10% penalty on the earnings. The rollover changes that. Leftover 529 dollars can now be moved, in the beneficiary’s name, into a Roth IRA and grow tax-free for retirement. Same money, different finish line.

The proof: SECURE 2.0, Section 126

Section 126 of the SECURE 2.0 Act of 2022 amended Internal Revenue Code Section 529(c) to allow direct trustee-to-trustee transfers from a 529 to a Roth IRA for the same beneficiary. The IRS confirmed the mechanics, and the provision went live for distributions made after December 31, 2023. Every major 529 plan administrator (Vanguard, Fidelity, the state-sponsored plans) now processes these transfers.

Who qualifies, and who does not

The 529 account must have been open for at least 15 years. The Roth IRA has to be in the name of the 529 beneficiary, not the account owner (so if you opened the 529 for your daughter, the Roth has to be hers). The beneficiary needs earned income in the year of the rollover at least equal to the amount being moved. And contributions made to the 529 in the last five years, plus any earnings on those contributions, are off-limits.

Who is shut out: parents trying to redirect the money into their own Roth, anyone with a 529 opened less than 15 years ago, and beneficiaries with no W-2 or self-employment income for the year.

How to actually do it in 2026

1. Confirm the 529 has been open for at least 15 years. Pull the original account-opening documents.
2. Open a Roth IRA in the beneficiary’s name at any brokerage.
3. Check the annual cap. For 2026, the Roth IRA contribution limit is $7,500 for anyone under 50. That is the most you can roll over in a single year, and it counts against the beneficiary’s regular Roth contribution for that year.
4. Verify the beneficiary earned at least the rollover amount in wages or self-employment income in 2026.
5. Request a direct trustee-to-trustee transfer from the 529 plan. Do not take a check yourself. Repeat annually until you hit the $35,000 lifetime cap.

Unlike normal Roth contributions, the usual income phase-outs do not apply here. A beneficiary earning six figures who is normally locked out of a direct Roth contribution can still receive the rollover.

The catch

First, the five-year lookback: any money you contributed in the last five years cannot be moved, so last-minute stuffing does not work. Second, the annual limit is the yearly Roth cap of $7,500, meaning it takes roughly five years of rollovers to hit the lifetime ceiling. Third, changing the beneficiary can reset the 15-year clock. The IRS has not issued final guidance on beneficiary changes, so switching the account from one child to another and immediately rolling to Roth is the fastest way to get flagged.

One more thing worth naming: with the 10-year Treasury yielding 4.38% and every dollar of that interest taxable, moving leftover college money into a Roth wrapper where growth compounds tax-free is meaningfully more valuable than it was a few years ago.

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