For decades, 529 college savings plans came with a frustrating catch: if your child earned scholarships, attended a less expensive school, or simply didn't use all the funds, you faced unappealing options. Withdraw the money and pay taxes plus a 10% penalty on earnings, or leave it sitting indefinitely. Now, thanks to a provision in the SECURE 2.0 Act that took full effect this year, a third option has emerged—and it could transform how families approach both college and retirement planning.

The Game-Changing Provision

Starting in 2024 and now fully operational in 2026, families can transfer remaining 529 plan balances directly into the beneficiary's Roth IRA, up to a lifetime limit of $35,000. The provision creates a bridge between college savings and retirement wealth that didn't exist before, turning what was often a planning headache into a planning opportunity.

Consider the implications: A child who receives a full scholarship could have their entire 529 balance converted to tax-free retirement savings. A student who lands a high-paying job immediately after graduation could start their career with a substantial Roth IRA balance. Parents who over-saved for college can redirect those funds toward their child's long-term financial security.

"This is one of the most significant enhancements to 529 plans since their creation. It essentially eliminates the risk of over-funding, which has been a barrier for many families considering aggressive college savings strategies."

— Financial planning expert

The Rules You Need to Know

The 529-to-Roth transfer comes with important restrictions that families must understand before planning around it:

15-Year Requirement: The 529 plan must have been open for at least 15 years before any rollover can occur. This is a look-back period, not a requirement that the same account owner held it for 15 years—though the specific beneficiary must match.

Five-Year Contribution Rule: Contributions made within the last five years cannot be rolled over to a Roth IRA. Only seasoned contributions and their associated earnings qualify. This prevents people from making last-minute 529 contributions solely to exploit the Roth rollover.

Annual Limits Apply: Transfers are subject to the annual Roth IRA contribution limit, which is $7,500 for 2026 (or $8,600 with the catch-up for those 50 and older). You cannot transfer $35,000 in a single year—it will take at least five years at current limits to maximize the lifetime allowance.

Income Limits Do Not Apply: Unlike regular Roth IRA contributions, 529-to-Roth rollovers are not subject to income limits. This creates a backdoor of sorts for high-earning beneficiaries who might otherwise be ineligible for Roth contributions.

Strategic Planning Opportunities

The new provision opens several planning strategies that advisors are beginning to implement for clients:

The Scholarship Insurance Strategy: Parents uncertain about future college costs can now fund 529 plans more aggressively, knowing that unused funds can be converted to retirement savings rather than withdrawn with penalties.

The Grandparent Gift Strategy: Grandparents who want to contribute to both college and retirement can front-load 529 contributions, taking advantage of the five-year gift tax averaging rule to contribute up to $95,000 per beneficiary in a single year. If funds remain after college, they flow to the grandchild's Roth IRA.

The Career-Start Strategy: Students graduating into high-income careers may find themselves immediately ineligible for direct Roth contributions. The 529 rollover provides a path to Roth funding that bypasses income restrictions.

The 2026 K-12 Enhancement

Separately, the annual federal limit on 529 plan distributions for qualifying K-12 expenses has doubled in 2026 from $10,000 to $20,000 per student. While unrelated to the Roth rollover provision, this change provides additional flexibility for families using 529 plans for private school tuition before college.

What Hasn't Changed

Several important 529 rules remain in place. The annual gift tax exclusion for contributions stays at $19,000 (no change from 2025), meaning the five-year gift tax averaging maximum remains $95,000. State tax deductions for 529 contributions vary by state and are not affected by federal changes.

Families should also remember that 529 plans are still primarily college savings vehicles. The Roth rollover is best viewed as a safety valve for excess funds rather than a primary retirement planning strategy.

Action Steps for 2026

If you're considering taking advantage of the 529-to-Roth rollover, here's what to do now:

Review your 529 plan statements to determine how long accounts have been open and when contributions were made. The 15-year and 5-year lookback periods are crucial for determining eligibility.

Consider whether it makes sense to open a 529 plan early—even with modest contributions—to start the 15-year clock. A newborn's plan opened today would be eligible for Roth rollovers by the time they're a college junior.

Coordinate with your financial advisor and tax professional. The interaction between 529 plans, Roth IRAs, and state tax benefits can be complex, and optimal strategies vary by individual circumstances.

The 529-to-Roth provision represents one of those rare tax law changes that is unambiguously positive for American families. Whether you're just starting to save for a child's education or managing an account that's grown beyond what you'll need, the new rules create options that simply weren't available before.