Mia Samson, a 28-year-old wealth advisor in Santa Monica, is contributing to a 529 college savings account despite not yet having children. She sees it as an additional savings vehicle after maxing out her Roth IRA and 401(k), with the intention of potentially using the funds for future children's education or a Roth IRA rollover. This trend highlights a new strategy where people without immediate educational needs are using 529s to save, taking advantage of the tax-free growth similar to retirement accounts.
The SECURE 2.0 Act, enacted in 2024, introduced a provision allowing up to $35,000 from a 529 account to be rolled into the beneficiary's Roth IRA over their lifetime. This offers a flexible exit strategy for overfunded or unused 529 accounts. However, this rollover is subject to several strict conditions, including the 529 account needing to be open for at least 15 years, and contributions made in the last five years being ineligible for rollover.
Further restrictions for the 529 to Roth IRA rollover include annual contribution limits, which for 2026 is $7,500, or $8,600 for those 50 or older, and beneficiaries needing earned income at least equal to the rollover amount. The Roth IRA must also be in the name of the 529 beneficiary, not the account owner. While this provision offers a valuable option for long-term savings and potential Roth contributions, its complexity and various gates mean that many existing 529 accounts may not immediately qualify.
