Ask the Editor, September 12: Tax Questions on 529 Plan Rollovers to a Roth IRA

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on transferring 529 plan money to a Roth IRA. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. General rules for 529 rollover to a Roth IRA

Question: We funded a 529 college savings plan for my granddaughter. She used the money in the account for college. She’s now done with school, and there are still unused funds in the account. I heard that we can transfer some of the money to a Roth IRA for her. What are the rules for this?

Joy Taylor: Starting in 2024, some excess 529 funds can be transferred tax-free to a Roth IRA for the beneficiary in a direct trustee-to-trustee transfer. This relief, enacted in the SECURE 2.0 legislation, is subject to important rules:

• The 529 account must have been open for at least 15 years, with the same beneficiary.
• 529 contributions made in the prior five years are ineligible for the transfer.
• Annual 529 distributions for this purpose can’t exceed the annual contribution limit for Roth IRAs, which is $7,000 in 2025.
• And there is a lifetime $35,000 cap.

2. Roth IRA contributions made by beneficiary

Question: My son already contributed the maximum amount of $7,000 to his Roth IRA this year. Can we also do a direct trustee-to-trustee transfer of $7,000 from his 529 account to his Roth IRA in 2025?

From just $107.88 $24.99 for Kiplinger Personal Finance

Be a smarter, better informed investor.

CLICK FOR FREE ISSUE

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Joy Taylor: No. The annual transfer limit from the 529 to the Roth IRA can’t exceed the IRA contribution limit for the year of the rollover. Any actual contributions for the year made to any IRA (traditional or Roth) owned by the beneficiary count against this limit. For example, let’s say a 529 plan beneficiary contributes $3,000 to his traditional IRA in 2025. Only $4,000 of leftover 529 funds can be transferred to his Roth IRA in 2025. If the beneficiary has already maxed out IRA contributions in a year, then no 529 funds can be transferred to the Roth IRA that year.

3. Taxable compensation

Question: If the beneficiary of the 529 plan doesn’t have any taxable compensation for the year, can the 529 plan transfer funds to a Roth IRA in a direct trustee-to-trustee transfer?

Joy Taylor: No. Any transfer from the 529 plan to a Roth IRA must meet all the Roth IRA rules, which means the beneficiary must have taxable compensation equal to or greater than the 529 amount transferred to the Roth IRA.

4. Multiple 529 plans

Question: If a person is the beneficiary of two 529 plans, say one from a grandparent and another from a parent, can each 529 account transfer up to $35,000 to a Roth IRA owned by the beneficiary?

Joy Taylor: It doesn’t appear so. The statutory language says that the $35,000 aggregate limit on direct trustee-to-trustee transfers from a 529 account to a Roth IRA applies with respect to the designated beneficiary. Although the IRS hasn’t yet published any guidance on this, tax and financial experts believe that this means the $35,000 limit applies per person. If an individual is the beneficiary of two 529 accounts, $35,000 (and not $70,000) is the lifetime cap on direct trustee-to-trustee transfers to a Roth IRA.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the OBBB and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on 529 Plans
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Reader Questions on IRAs, RMDs and PTPs