Proposed Legislation Has Targeted 529 Rollover Limits
New legislation aims to remove the $35,000 lifetime cap on transferring unused 529 plan savings into a Roth IRA.
Updated on Oct. 14, 2026 in Retirement Planning
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Senators Ted Cruz and Lisa Blunt Rochester have introduced the 529 Retirement Enhancement Act of 2026 to eliminate the lifetime limit on rollovers from 529 accounts to Roth IRAs. This proposal seeks to provide greater flexibility for families managing unused education savings.
Why it matters
The bill aims to remove financial penalties for families with excess college savings, allowing parents to redirect those funds toward a beneficiarys retirement. Current law limits such tax-advantaged transfers to $35,000, forcing families to face penalties if they withdraw remaining funds for nonqualified purposes.
Current law limits tax-free rollovers from 529 plans to Roth IRAs to a $35,000 lifetime total. Under the new proposal, beneficiaries could potentially shift more excess 529 assets into a Roth IRA, where funds like the 2026 $7,500 annual limit can grow significantly over time.
The players
Ted Cruz
United States Senator who co-introduced the 529 Retirement Enhancement Act of 2026.
Lisa Blunt Rochester
United States Senator who co-introduced the 529 Retirement Enhancement Act of 2026.
The details
The SECURE Act 2.0 originally established the $35,000 rollover limit in 2022, requiring accounts to be open for 15 years before rollovers can occur. Proposed changes would allow families to move excess assets into a Roth IRA in the beneficiary's name, provided the beneficiary has earned income. Without this flexibility, families often face income tax and a 10% federal penalty when taking nonqualified withdrawals from an overfunded 529 account.
Timeline
Congress passed the SECURE Act 2.0 at the end of 2022.
The 2026 annual gift tax exclusion is set at $19,000 per person.
This news was reported on October 14, 2026.
Money Landscape
This proposal marks a significant policy expansion relative to the rules established by the SECURE Act 2.0. It reflects a broader effort to provide households with more flexibility in managing long-term savings as they transition between education and retirement funding.
Families currently carrying excess balances in 529 accounts should monitor this legislation to see if they can eventually move more than the existing $35,000 cap into a retirement account. Consider discussing your current 529 balance and long-term goals with a tax or financial professional.
The takeaway
The proposed bill would remove a major constraint on how families reclaim excess college savings. Monitor congressional developments and consult with a tax professional regarding your current account balances and the 15-year holding rule for potential future rollovers.
Further reading
For more on managing education savings, review our guide on Retirement Planning.
Source note: This article includes information reported by Kiplinger.
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Should federal law allow unlimited rollovers from unused college savings plans into personal retirement accounts?
