New rule lets you roll 529 education savings plans into Roth IRAs

State-run 529 savings plans have always been a good choice for families intending to send their kids to college or private K-12 schools, as they have very generous contribution limits and allow for tax-free compounding and withdrawals. Now the case for setting one up is even stronger, as up to $35k of unused funds may be rolled into a beneficiary’s Roth IRA, where the money will retain full tax-exempt status.

Funds may be converted so long as the 529 is at least 15 years old and the funds have been there for 5 years. The rules aren’t crystal clear yet, but it looks like the beneficiary must not have changed in that 15 years, so if you have multiple children it may be best to open a 519 for each. The amount rolled over per year is limited to the annual Roth contribution limit (currently $6500), so it will take several years to fill up the $35k limit. Nonetheless, starting early adulthood with a $35k Roth, that account could swell to a couple million by retirement even if no more money is ever contributed.

This is potentially another backdoor to a modest Roth for adults, as there are no income or age limits on 529 plans. All that is required is advance planning.