ROLLING OVER 529 FUNDS TO A ROTH

The editor of The Kiplinger Tax Letter responds to readers asking about transfers from a college-savings plan to a Roth IRA.

- BY JOY TAYLOR

We funded a 529 college-savings plan for my granddaughter, and she used the money for college. She's now done with school, and there are 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?

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, which was included in the 2022 SECURE 2.0 legislation and became effective in 2024, is subject to some important rules. The 529 account must have been open for at least 15 years, with the same beneficiary. Contributions to the 529 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 (at press time, the 2026 limit hadn't yet been announced). And there is a lifetime cap of $35,000.