Meridian Blog

If you have children and are fortunate enough to be able to save for their post-high school education in advance, a 529 savings account is often a great and popular option. However, there is some concern about leftover money that is not used for qualified education expenses, whether it’s because the child decides not to go to college, gets scholarships, etc.

Previously, leftover 529 funds could trigger taxes and penalties if withdrawn for non-education purposes. But starting in 2024, new IRS rules—introduced under the SECURE 2.0 Act—provide a powerful solution: tax-free rollovers from 529 plans to Roth IRAs.

A 529-to-Roth rollover allows certain unused funds in a 529 college savings account to be transferred into a Roth IRA for the beneficiary. This effectively turns leftover education savings into retirement savings—without taxes or penalties.

Like most financial strategies, the rollover comes with rules that must be followed:

🎓➡️💰 529-to-Roth IRA Rollovers

✅ The Rules

• $35,000 lifetime limit per beneficiary
• 529 must be 15+ years old
• No recent contributions (last 5 years ineligible)
• Annual Roth IRA limits apply ($7,000 in 2025; $8,000 if 50+)
• Beneficiary must have earned income
• Rollover goes into beneficiary’s Roth IRA (not the parent’s)

💡Why It Matters

• Avoids penalties on leftover 529 funds
• Gives young adults a retirement head start
• Encourages saving for education without fear of “overfunding”

Just like with regular Roth IRA contributions, the beneficiary must have earned income at least equal to the amount rolled over, and the rollover must be made into a Roth IRA in the name of the 529’s beneficiary, not the account owner (often a parent or grandparent).

Example of a 529-to-Roth Rollover

Let’s say a parent set up a 529 plan for their child, who graduates with $20,000 in unused funds after scholarships.

• The 529 has been open for over 15 years.
• The child earns $50,000 in their first job.
• The parent rolls $7,000 from the 529 into the child’s Roth IRA in 2024.
• Over the next two years, another $14,000 is rolled over (subject to contribution limits).

Result: instead of incurring taxes or penalties, the leftover college savings now provide a head start on retirement savings.

Note that there are other options for leftover college savings funds, such as changing the beneficiary to a sibling or other qualifying relative. However, the new Roth IRA rule is a great way to continue supporting the original beneficiary and enjoy tax-free growth over a long period of time.

Unfortunately, I am far too old to have benefited from this strategy in my college years, but I will certainly take advantage of it for my children should the situation present itself. As I have said in this space before, a lot of credit goes to my dad, who helped me start funding a Roth IRA very early in my working years.

However, I was taken back to my childhood years during a recent visit to Universal’s Epic Universe in Orlando (highly recommend by the way). The park “transports” you to four different worlds that are extremely detailed and lifelike – Ministry of Magic (Harry Potter), Super Nintendo World, Dark Universe (Dracula, etc.), and Isle of Berk (How to Train Your Dragon). I particularly enjoyed Super Nintendo World, which made you feel as though you were in a Super Mario Bros. game!

Video games have come a LONG way since the original Super Mario Bros. on the Nintendo Entertainment System (NES)!