Our daughter was born last Thursday. I had a whole introduction written about the dilemma every new parent faces when funding education savings. Reading it back at 3 a.m. with a newborn on my chest, it sounded like something written by someone who hadn’t met her yet. So here’s the real version: nobody knows what the right number is. Not for her, not for your kids, not for your grandkids.
Save aggressively, and you risk over-funding an account that gets penalized for non-education use. Save conservatively, and you risk falling short. There’s no good way to know in advance.
That same uncertainty shows up on the other end of the timeline. I hear it from clients every week — grandparents who funded 529s a decade or more ago and are now watching balances sit there because a scholarship came through, the school cost less than expected, or the grandchild took a different path. Money saved with intention, looking for somewhere productive to go.
The SECURE Act 2.0 created an option. Starting in 2024, leftover 529 funds can be rolled into a Roth IRA for the same beneficiary — without the income tax and penalty that would normally apply to a non-qualified withdrawal.
The rules are specific:
- The 529 account must have been open for at least 15 years
- Contributions made in the last 5 years (and their earnings) are not eligible
- The beneficiary must have earned income at least equal to the rollover amount
- The annual transfer is capped at the standard Roth IRA contribution limit ($7,500 in 2026 for those under 50)
- Lifetime cap of $35,000 per beneficiary
There’s also a nuance the IRS hasn’t fully clarified — whether changing the 529 beneficiary resets the 15-year clock. The conservative read is that it likely does. Worth talking through case by case.
What’s genuinely useful about this provision isn’t that it turns 529s into a Roth funding strategy. It isn’t designed as one, and the rules reflect that. What it does is take a worst-case scenario and make it a productive one. The downside of over-funding used to be a tax penalty. Now, under specific conditions, it can mean redirecting unused education savings toward the beneficiary’s retirement.
For clients sitting on long-established 529s with leftover balances, that flexibility is available now. For those of us just opening accounts, it’s the kind of option worth knowing exists when you’re trying to decide how much to put in.
Funding decisions like this deserve to be made in the full context of a plan — including state tax treatment, other retirement accounts, and what you actually want for the beneficiary. That’s a conversation, not a calculation.
At Shoreline Financial Partners, we guide clients on their financial journey — whether they are just beginning or in retirement. Contact us today to discuss 529s and other financial strategies.
Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing.
Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state's 529 Plan.
Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.