For families looking to create lasting financial security for their children or grandchildren, the 529 plan to Roth IRA transfer strategy is a powerful tool. It combines education savings with long-term, tax-free investment growth. Thanks to a new IRS rule, it’s now possible to use unused 529 plan funds to jumpstart retirement savings for the next generation.
What Is the 529 to Roth IRA Transfer Rule?
Starting in 2024, you can transfer up to $35,000 from a 529 plan to a Roth IRA for the beneficiary. This move helps convert education savings into long-term wealth, but there are strict requirements:
- The 529 plan must be open for at least 15 years.
- Contributions and earnings from the last five years cannot be transferred.
- The beneficiary must have earned income in the year of the transfer.
- Transfers are subject to the annual Roth IRA contribution limit (e.g., $7,000 in 2024).
- The $35,000 total transfer limit applies per beneficiary, not per 529 account.
Example case study
- Contribute $1,000 at birth, then $200/month for 15 years.
- Total contributions: $37,000
- Account value after 15 years at 7% growth: ~$63,000
You can’t transfer all $63,000. You must exclude contributions and earnings from the last five years. Assume the value at year 10 is around $35,000. That amount is eligible for Roth IRA transfer, over time.
Since your child needs earned income to receive a Roth IRA contribution, this strategy starts once they have a job. You (as parent or custodian) can initiate the transfer each year, starting at age 15 or 16, using the Roth IRA annual limit as a cap. Over several years, the full $35,000 can be transferred.
Let’s say it is all transferred over time, and then left untouched for 50 years at 7% annual growth. That turns into roughly $1 million in tax-free retirement savings by age 65.
FAQs
No. The 529 to Roth IRA transfer is limited to the annual Roth IRA contribution limit and counts as that year’s contribution. The mega backdoor Roth strategy is unrelated and applies to employer-sponsored plans like a 401(k).
No, as long as you follow all the rules. Remember the original contributions to the 529 plan are already taxed. Contributions and earnings inside the Roth IRA are tax-free once successfully transferred.
No problem. The example was just to show how compounding works. If you started at age 4 or used $175 per month, the concept still holds. Earlier is better, but consistency matters more than perfection.
It’s not too late. If they have earned income, you can still open and contribute directly to a Roth IRA for them. There are also other strategies to explore beyond the 529 plan.
UTMAs can be useful but come with different tax treatment. Investment earnings may be taxed at the child’s rate, and the child takes full control of the account at the age of majority. Roth IRAs, by contrast, grow tax-free and can offer more long-term protection.
You can gift your child money to invest in a Roth IRA, but they must have earned income equal to or greater than the contribution. The gift itself is not taxable as long as it stays under the annual gift exclusion limit ($19,000 in 2025).
This strategy is specifically for unused 529 plan funds, which may occur if your child decides not to pursue higher education or earns enough scholarships or grants to pay for education. Remember the 529 plan to Roth IRA transfer is limited to $35,000 so this is one strategy out of many to build generational wealth.
Final Thoughts
This strategy isn’t about picking the perfect investment. It’s about using the rules to your advantage. If you already planned to support your child’s education, this offers a way to help with retirement too.
Start early, contribute consistently, and when they start earning income, help them take the next step. That’s how small amounts today can turn into a foundation for generational wealth.
About the Author
Spenser Liszt, CFP®
I’m Spenser Liszt, a CERTIFIED FINANCIAL PLANNER® professional helping high-earning music executives make smart, confident decisions with their money. I provide straightforward, flat-fee, advice-only financial planning—no sales, commissions, or asset management. I don’t take custody of your investments; I show you how to manage them yourself with a clear, structured plan. If you’re a music executive and want a thoughtful, structured approach to your finances, let’s talk.
