Key Takeaways
- A 30-year-old has about $30,000 in a 529 she never used, and she’s thinking about withdrawing it, penalty and all, to pay off medical debt and an upcoming surgery.
- Since 2024, the beneficiary of a 529 can move its money straight into her own Roth IRA, up to $35,000 over her lifetime, as long as the account has been open more than 15 years.
- Each year’s transfer is capped at the Roth IRA limit, which is $7,500 in 2026, and money added to the 529 in the last five years can’t move.
- If her account qualifies, her whole $30,000 can become retirement savings after four years of transfers.
If there’s a 529 in your family that nobody’s ever going to spend on school, I have some good news. Since 2024, the person it was saved for can move some or all of it into a Roth IRA in their own name, so the college fund becomes retirement savings.
A college fund with nowhere to go
That rule could help a 30-year-old who posted in Reddit’s r/personalfinance forum last week. She went to college for a year at 20 and hated it. She has about $30,000 in a 529 she says was never used, and it “feels weird” to her that it’s been sitting there for years. She has no kids and doesn’t plan to have any, and she has no nieces, nephews or other family to pass the account to.
She also has a stable job she loves and a home with no mortgage. Her only debt is $5,000 of medical bills. She’s planning surgery for endometriosis next year, and she expects it to add a few thousand more after insurance. So she’s thinking about withdrawing the money, paying off the debt and the surgery, and saving the rest. As she put it, “I do know there’s a penalty.”
I get the appeal. But if her account is old enough, she has another option for all $30,000: her own Roth IRA.
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The account has to be more than 15 years old
Under the 529-to-Roth rollover rule, the beneficiary of a 529 can send money from it straight to a Roth IRA in their own name. It has to go as a direct trustee-to-trustee transfer, so the 529 plan pays the Roth IRA’s custodian and the money never passes through her hands. The 529 must have been open more than 15 years. Any money put in during the five years before a transfer has to stay behind, along with whatever it earned. Each year’s transfer is capped at the Roth IRA contribution limit, which is $7,500 for 2026, and her transfers can’t add up to more than $35,000 over her lifetime.
Her post doesn’t say when the account was opened, so that’s the first thing she needs to find out. Since she’s 30, the account qualifies if it was opened before she turned 15. And if no one has put new money in over the last five years, every dollar in it can move.
Four years to move $30,000
At this year’s $7,500 limit, moving her $30,000 would take four transfers, one a year. If she starts this year, the last $7,500 would go over in 2029. Since the lifetime cap is $35,000, she’d also have $5,000 of room if the balance grows while she waits, and anything above the cap would stay in the 529.
Her post doesn’t say who paid into the account, but parents and grandparents with an unused 529 should know about this too. The money can only go into the beneficiary’s own Roth IRA, so the college savings they put aside become that person’s retirement savings. For a gift made 15 or more years ago, that’s not a bad way for it to end up.
Cover the surgery another way
Her debt and the surgery come to $5,000 plus what she calls “a few more thousand,” a small share of what’s in the account. Every dollar she withdraws comes with the penalty she mentioned, and it’s one less dollar she can move into her Roth later. She could split it, taking out enough for the bills and moving the rest. But with a steady paycheck and no mortgage, she may be able to pay those bills from her income over the next year.
If I were in her shoes, I’d call the 529 plan and find out when the account was opened before touching a dime. If it’s more than 15 years old, I’d open a Roth IRA in my own name, start the first $7,500 transfer this year, and pay the medical bills out of my paycheck.
Of course, if the account is younger than that, she’ll have to wait. If it was opened when she was 18, for example, it would pass 15 years in a little over three years, and until then her best move may be to leave it alone.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
