08/25/2026
Many conversations around college savings is about whether you're saving enough. Fewer people talk about what happens when a 529 plan outlasts the beneficiary's education needs.
Maybe your child earned a scholarship. Maybe they chose a less expensive school. Maybe the plan changed. However it happened, you built this account carefully, and now it has more in it than you need. For years, your options were limited: take a taxable distribution and pay a 10 percent penalty on earnings, or change the beneficiary and hope someone else uses it. SECURE 2.0 added a third option that many families aren't familiar with. Depending on the circumstances, some unused 529 assets may be eligible to be rolled into a Roth IRA for the beneficiary.
Here's what to know:
✅$35,000 lifetime cap per beneficiary
✅The account must be at least 15 years old
✅ Annual rollovers are capped at that year's Roth IRA contribution limit ($7,500 in 2026)
✅Only contributions made at least 5 years before the transfer date qualify
✅No income limits apply (unlike regular Roth contributions)
(Source: Fidelity, “How Unused 529 Assets Can Help With Retirement Planning”)
For some families, this may provide another option for unused 529 assets.
📍 A 529 plan is a tax-advantaged education savings plan. Before choosing a plan, it's important to consider not only the state tax treatment but also any associated fees and expenses. Availability of a state tax deduction will depend on your state of residence, as state tax laws and treatment may vary from federal tax laws. If you make nonqualified distributions, earnings will be subject to income tax and a 10 percent federal penalty tax.
📍To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a 5-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be taken under certain other circumstances, such as the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals.
Disclosure: This content is for informational purposes only and does not constitute investment, tax, legal, or accounting advice. Please consult your tax, legal, and financial professionals regarding your individual circumstances.
📍 BCS Wealth | Johnson City, TN
☎️ (423) 283-9821
