Opening a 529 for Your Child Now Can Even Help With Their Retirement Later on

A 529 savings plan is often seen as a tool for funding college, but thanks to recent changes, it can also help your child save for retirement.

So if you’ve been reluctant to open a 529 savings plan because you’re unsure whether your child will attend college or you’re concerned about having excess money in your account, this rule might offer some peace of mind: funds from 529 savings plans can be rolled over into Roth IRAs.

A Roth IRA is known for its special tax benefits–you pay taxes on upfront contributions, your investments grow tax-free, and you don’t pay taxes when you take withdrawals in retirement.

“This new provision was a part of the SECURE Act 2.0, which was passed in 2022,” said Rob Williams, director of financial planning and wealth management at Charles Schwab. “It allows for more flexibility in how 529 assets are used if you have money left over after a child goes to college—you can roll over a certain amount from that 529 into that beneficiary’s Roth account.”

What Is a 529 Savings Plan?

529 savings plans are a type of tax-advantaged account meant for educational expenses. These plans are typically operated by states, and when funds are used for qualified education expenses. such as college tuition, books, room and board, they’re free from federal and state taxes.

You can open a 529 savings plan for yourself or designate someone else as the beneficiary, like your child, grandchild, or niece.

When you open a 529 savings plan, you’ll be given different investment options, like portfolios based on the age of the beneficiary and your risk tolerance. Like target-date funds, these portfolios may shift the investment allocation into more conservative assets as the beneficiary approaches college age.

Funds in a 529 grow tax-deferred, and many states offer deductions or credits for contributions. In 2025, you can contribute up to $19,000 per year without triggering the federal gift tax.

And even if the beneficiary doesn’t use up all the funds in a 529 savings plan, Williams notes that people can still withdraw the original contributions tax-free. However, if you withdraw earnings, those are typically subject to federal and state taxes as well as a 10% penalty.

How to Convert a 529 Savings Plan to a Roth IRA

While having the ability to convert a 529 savings plan to a Roth gives people more options, you probably shouldn’t rush to open a 529 savings plan with the sole purpose of converting it to a Roth IRA.

This is because there are many rules and requirements that apply to these rollovers:

• The 529 savings plan must be open for more than 15 years
• You can’t convert any 529 savings contributions from the last five years
• You can’t rollover more than $35,000 in a lifetime
• The amount you roll over in a year cannot exceed the annual Roth contribution limit
• You must have earned income that is at least equal to the amount you roll over in a year
• The 529 savings plan can only be converted to a Roth account for the same beneficiary

In other words, if you wanted to convert a 529 savings plan that you just opened into a Roth IRA, you’d have to wait until that 529 savings plan is more than 15 years old. Plus, there’s a cap on how much you can convert in a lifetime—you can rollover no more than $35,000 per beneficiary in a lifetime.

Williams also notes that if the beneficiary plans to contribute money to a traditional IRA or Roth in a year where they also plan to rollover money from a 529 savings plan, the total amount they contribute and rollover must be less than the annual IRA contribution limit, which is $7,000 for 2025.

This means that if you contributed $3,000 to a Roth IRA in 2025, you would only be able to roll over up to $4,000 from a 529 savings plan.

Although this provision went into effect at the beginning of 2024, there are still some uncertainties about the rule. For example, while people are generally able to change the beneficiary on a 529 savings plan, it’s unclear whether that would affect whether someone is able to do a rollover.

“We are not aware of any clarification or statements from the IRS clarifying or answering that question,” said Williams. “That’s not unusual. Sometimes it takes the IRS years to interpret laws that Congress passes.”

The Bottom Line

A 529 savings plan remains a powerful way to save for a child’s education, offering tax-deferred growth and tax-free withdrawals for qualified expenses. Now, thanks to the SECURE Act 2.0, unused funds can help jumpstart your child’s retirement by rolling over into a Roth IRA.

However, there are strict rules to do so: the account must be open for more than 15 years, rollovers are limited to a total of $35,000, and you can only rollover up to the annual IRA contribution limit per year. The provision expands how 529 funds can be used, but financial experts caution against opening this account only to roll over the money to a Roth.

In fact, Williams suggests that people who want to help their kids get a head start on retirement saving just open a Roth IRA for them while they’re young—kids will just need some earned income first.