529 to Roth IRA Rollovers: A New Estate Planning Tool in 2026

Understanding the 529 to Roth IRA rollover

Americans have long used Section 529 plans to save for a child’s education. These tax‑advantaged accounts grow free from federal income tax and, when used for qualified education expenses, allow withdrawals without tax or penalty. But what happens when the account balance exceeds education costs? Before 2024, excess funds faced limited options: remain in the account indefinitely, be transferred to another family member’s 529 plan, or be withdrawn for non‑educational purposes subject to taxes and a 10 percent penalty.

SECURE 2.0, enacted in late 2022, changed the landscape. Starting January 1, 2024, and gaining momentum into 2026, account owners may roll over unused 529 funds directly into a Roth IRA for the benefit of the 529 plan’s beneficiary. This 529 to Roth IRA rollover transforms unused education dollars into retirement savings, preserving the tax‑advantaged status and providing a powerful estate planning opportunity. Families who may have hesitated to overfund a 529 plan now have reassurance that excess funds can support a child or grandchild’s future in another meaningful way.

Key rules to know in 2026

By February 2026, many financial institutions have implemented the new rollover capability, but strict conditions still apply. The 529 account must be at least 15 years old, and any contributions (and earnings on those contributions) made within the last five years are ineligible for rollover. The rollover is subject to the annual Roth IRA contribution limits, which are $7,500 in 2026 (with an extra $1,100 catch‑up for individuals aged 50 and older). There is also a lifetime cap of $35,000 per beneficiary.

Critically, the beneficiary must have earned income equal to or greater than the amount being rolled over in that year. For example, if you intend to roll over $5,000 in 2026, the beneficiary must have at least $5,000 in wages or self‑employment income that year. Income limits that normally restrict high earners from contributing directly to Roth IRAs do not apply to this type of rollover. The rollover can only be made to a Roth IRA owned by the same person named as the beneficiary of the 529 plan, and the rollover counts toward the beneficiary’s annual Roth contribution limit. These rules mean that moving $35,000 will take multiple years, depending on the beneficiary’s income and the current contribution limit.

Why 529 to Roth IRA rollovers matter for estate planning

The new 529 to Roth IRA rollover option offers several advantages for estate planners. First, it reduces waste. Parents and grandparents can continue to contribute to a 529 plan without fear that unspent funds will be trapped or penalized. Instead of leaving unused dollars in limbo or making a taxable withdrawal, you can provide the beneficiary a head start on retirement savings. A Roth IRA grows tax‑free, and qualified distributions in retirement are tax‑free, which can produce decades of compounding.

Second, the rollover can simplify inheritance. Without this option, leftover 529 funds might be distributed to contingent beneficiaries or subject to penalty if withdrawn. Now, those funds move seamlessly into the beneficiary’s own retirement account, where they remain outside of the original owner’s estate. This helps avoid disputes among siblings and ensures that education savings ultimately benefit the intended person.

Third, rolling over a 529 to a Roth IRA aligns with multi‑generational wealth planning. Many families use 529 plans as part of a gifting strategy, leveraging the five‑year election to contribute large amounts without incurring gift tax. The new rollover feature extends that strategy: once education is funded, remaining dollars become a seed for retirement, further enhancing the gift’s value. For affluent families, using annual gift tax exclusions to fund 529 plans and, ultimately, Roth IRAs can be part of a broader effort to transfer wealth while reducing future estate tax exposure.

Fourth, this option may help equalize inheritances. Parents who fund one child’s education more than another’s due to differences in scholarships or schooling choices can use rollovers to balance the scales. If a younger child uses more of the 529 funds for education, the older child can receive a rollover to a Roth IRA, ensuring each child receives a similar benefit.

Planning considerations and potential pitfalls

While the 529 to Roth IRA rollover offers promising possibilities, it is not automatic. Here are issues to consider:

• Account age: You cannot accelerate the 15‑year clock. If you open a 529 plan today, you will wait until at least 2039 to start rollovers. Families with multiple children should establish accounts early, even before names are attached, because you can change the beneficiary to another family member later.

• Contribution timing: Contributions made in the last five years cannot be rolled over. If you make a large contribution in 2025, you must wait until 2030 to roll those dollars. Plan contributions accordingly, perhaps front‑loading early and letting them grow.

• Beneficiary earnings: The beneficiary needs earned income to match the rollover. Young children may not have substantial earnings. If the beneficiary is in college or early in their career, coordinate the rollover amount with their job earnings. If they are in graduate school and have limited income, consider smaller rollovers or delaying until they have higher earnings.

• State tax treatment: Not all states conform to federal rules. Some states offer deductions for 529 contributions but may tax rollovers. Check with your state’s plan and tax advisor to understand whether the rollover is treated as a qualified distribution for state tax purposes.

• Loss of control: Once funds are in a Roth IRA owned by the beneficiary, they control the account. Unlike a 529 plan, which the owner can change or withdraw, the Roth IRA is under the beneficiary’s sole authority. They can access contributions (not earnings) at any time, which may or may not align with your intentions. Consider whether your beneficiary is financially responsible or whether you would prefer to hold leftover education funds in a trust.

• Coordination with financial aid: A rollover does not count as income to the beneficiary, but it may affect financial aid calculations in future years. Understand how assets in a Roth IRA are treated in the need‑based aid formula compared to assets in a 529 plan.

Integrating rollovers into your estate plan

How do you make the most of this new tool? Start by reviewing your existing 529 plans. If you have beneficiaries nearing adulthood with unused education savings, talk to your financial advisor about whether a rollover is feasible. Consider funding 529 plans aggressively while children are young, leveraging gift tax exclusions and the five‑year election, then rolling over leftover funds into Roth IRAs once the 15‑year threshold has passed.

Coordinate rollovers with other estate planning strategies. If you are using irrevocable trusts to hold education funds, make sure the trust allows for rollovers and that the trustees understand the rules. Align the timing of rollovers with your beneficiaries’ earnings years to maximize the amount moved. If you are using a generation‑skipping trust or have grandchildren as beneficiaries, the rollover can provide a retirement nest egg for them in addition to education funding.

Communicate with beneficiaries about your intentions. Explain that the rollover is part of a larger estate plan and that the Roth IRA is meant to provide for long‑term financial security. Encourage them to maintain the Roth IRA and avoid tapping it prematurely.

Finally, monitor legislative updates. SECURE 2.0’s 529 to Roth IRA rollover is still new, and the IRS may issue additional guidance or clarifications. Congress could adjust lifetime or annual limits, or states could align or diverge from federal treatment. Staying informed ensures that your plan remains compliant and effective.

Conclusion

The ability to roll over unused 529 funds into a Roth IRA represents a significant shift in education and retirement planning. As of 2026, families can convert leftover college savings into tax‑free retirement dollars, helping beneficiaries accumulate wealth early in life. For estate planners, this 529 to Roth IRA rollover offers flexibility, tax efficiency and fairness among heirs. By understanding the rules, anticipating the timing, coordinating with broader planning strategies and communicating with beneficiaries, you can turn education savings into a lifetime financial foundation. Embrace this new tool to enhance your legacy and adapt to the evolving landscape of estate planning.