You spent years contributing to your child’s 529 plan. But what happens if they still have funds left in the account after graduation? The good news is, that money doesn’t have to go to waste.
Leftover 529 funds after graduation can be rolled into a Roth IRA for the beneficiary (up to $35,000), used for graduate school or other qualified education, transferred to another family member, applied to student loans (up to $10,000), or withdrawn for non-educational use with taxes and a 10% penalty on earnings.
Each option has its own rules and trade-offs. Let’s talk about how to think through them, and when it makes sense to speak with a financial advisor.
This is not to be construed with tax advice. No one should act upon any tax information herein without consulting a tax professional.
Transfer 529 to Roth IRA (Up To $35,000)
The Wall Street Journal discussed the merits of 529 plan to Roth IRA rollovers. In its September 2024 article, they quote Aaron Benner, a father of three in Houston. Two of his sons graduated college with scholarships, leaving about $20,000 in each of their 529 plans. Rather than withdraw the funds and pay taxes on the earnings, Benner rolled them into Roth IRAs.
“It could be nice for them,” he told The Wall Street Journal. “There’s a lot of time to let the money grow, which is good because they won’t have pensions.”
Benner did this with the 529-to-Roth provision, which took effect in 2024 through the SECURE 2.0 Act. It allows you to roll over up to $35,000 from a 529 plan into a Roth IRA for the beneficiary.
Using this option has a few requirements, as specified by the IRS:
- The rollover must be paid through a direct trustee-to-trustee transfer to a Roth IRA maintained for the benefit of the beneficiary.
- The rollover amount for a year cannot be more than the Roth IRA annual contributions limit, and all such rollovers for the individual’s lifetime cannot exceed $35,000.
- The beneficiary must have earned income that equals or exceeds the rollover amount.
- The rollover must be from a section 529 account that has been open for more than 15 years.
- The distribution cannot exceed the aggregate amount contributed to the program (and earnings attributed to the contributed amount) before the 5-year period ending on the date of the distribution.
529 for Grad School
Leftover 529 funds can also be used for continuing education for the original beneficiary. This includes graduate school, law or medical school, professional certifications, registered apprenticeship programs, and accredited vocational training. The funds are tax-free for qualified education expenses—tuition, required fees, books, supplies, and room and board.
Your 529 plan has no expiration date, so the funds can remain invested between an undergraduate and a graduate program.
Can You Transfer a 529 to Another Child?
Yes, you can transfer leftover 529 funds to a sibling or another family member.
You can also name yourself as the new beneficiary if you’re considering continuing your education. These beneficiary changes are tax- and penalty-free when made to a qualifying family member, as outlined by the IRS.
Can You Use a 529 Account To Pay Student Loans?
You can use up to $10,000 per individual from a 529 plan to pay off student loans. This option, made possible by the SECURE Act, can also be applied to a sibling’s loans.
How To Withdraw 529 Funds
If none of the previous options make sense, you can withdraw the remaining funds for non-educational use.
Most plans let the account owner request a withdrawal online or through the plan administrator. Once you designate either yourself or the beneficiary as the recipient, the plan will issue a Form 1099-Q showing the contribution and earnings portions of the distribution.
The recipient is responsible for reporting the earnings on their tax return. For that reason, it’s worth coordinating the timing and recipient designation with a tax professional before submitting the request.
It may also make sense to work with a financial advisor, who can help you decide how to use the extra money once it is withdrawn.
Penalty for Withdrawing 529 Funds
You’ll pay ordinary income tax and a 10% penalty on the earnings portion (not the contributions). If, however, your child received a scholarship, you can withdraw up to the value of the scholarship without paying the penalty, though income taxes on the earnings still apply.
Choosing the Right Option for Your Family
If you’re like many parents, you’ve spent years prioritizing your child’s education and financial future. That doesn’t stop just because they’ve graduated. A 529 plan isn’t just about paying for college. It can also be a powerful tool for setting your child—and your family—up for long-term success.
If you’re unsure how to move forward with unused funds in your 529 plan, we suggest connecting with your financial advisor at Cary Street Partners.
We’re here to help you explore your options, and general tax considerations that come with each. Whether it’s helping your child begin their retirement journey or planning for the next generation’s education, our team is ready to support you every step of the way.
Paige W. Garrigan
Chief Marketing & Transitions Officer, Managing Director
The Wealth Wisdom Series is curated by Paige W. Garrigan, drawing from the experience and input from Cary Street Partners’ Financial Advisors. Collaborating internally with the team, she gathers pertinent and timely topics for readers. With over 30 years of experience in the financial services industry, she has acquired a wealth of knowledge across various facets of the industry, ensuring comprehensive insights for readers.
Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training.
Cary Street Partners is a broker-dealer and registered investment adviser and does not provide tax or legal advice; no one should act upon any tax or legal information herein without consulting a tax professional or an attorney.
These materials are furnished for informational and illustrative purposes only, to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. Materials have been compiled from sources believed to be reliable; however, Cary Street Partners does not guarantee the accuracy or completeness of the information presented. Such information is not intended to be complete or to constitute all the information necessary to evaluate adequately the consequences of investing in any securities, financial instruments, or strategies described herein. Nothing contained herein should be considered a solicitation to purchase or sell any specific securities or investment related services.
IRAs, 401(k)s and other retirement plans may have fees associated with them in addition to the costs associated with investing the assets of the retirement plan. These fees may include, but are not limited to: annual account fees; administrative fees that may include recordkeeping of the plan; legal fees; accounting fees; and termination fees. Please consult with your advisor or plan sponsor to learn more about the fees associated with a particular plan.
Any opinions expressed here are those of the authors, and such statements or opinions do not necessarily represent the opinions of Cary Street Partners. These are statements of judgment as of a certain date and are subject to future change without notice. Future predictions are subject to certain risks and uncertainties, which could cause actual results to differ from those currently anticipated or projected.
Tax laws referenced in this article are subject to change. This post reflects rules as of May 29, 2026. Please consult a qualified tax professional before taking any action based on this information.
