A $35,000 rollover from a 529 plan to a Roth IRA can yield $524,106 tax-free by age 62 under new SECURE 2.0 provisions.
A provision in the SECURE 2.0 Act allows parents to roll up to $35,000 of unused 529 education funds into a beneficiary’s Roth IRA tax- and penalty-free. The rule, effective since 2024, targets leftover balances after tuition and expenses.
The rollover is capped at $7,500 annually and requires the 529 account to be at least 15 years old. Beneficiaries must have earned income matching the rollover amount. A $35,000 transfer at age 22, growing at 7% annually, could reach $524,106 by age 62, avoiding RMDs and Medicare surcharges.
Parents with stranded 529 assets, often ranging from $40,000 to $90,000, previously faced a 10% penalty on earnings if cashed out. The new rule offers a tax-advantaged alternative for retirement savings.