529 plans: what they cover, the gift rules, and the 529-to-Roth rollover

A 529 plan is a savings account with a deal attached: put after-tax money in, let it grow, and if it comes out for education, the growth is never taxed. The deal is generous, so the rules about what counts as education matter. This page covers how a 529 is taxed, what you can spend it on, what happens to money that comes out for something else, the gift-tax side of large contributions, and the newer option for leftover money: rolling it into a Roth IRA.

How a 529 is taxed

Contributions aren't deductible on your federal return. In exchange, earnings grow without federal tax, and withdrawals used for qualified education expenses are tax-free. ¹ Many states add a deduction or credit for contributions to their own plan; that varies by state and is outside this page.

Each account has an owner, usually a parent or grandparent, and a beneficiary, the student. The owner controls the money and can change the beneficiary to another member of the beneficiary's family without tax. ¹

What counts as a qualified expense

• College and other eligible postsecondary schools: tuition, fees, books, supplies and required equipment, plus room and board for a student enrolled at least half-time. Computers, software and internet access used by the student count too. ¹
• K-12: tuition at an elementary or secondary school, and under the current statute some other K-12 costs, up to $20,000 a year per student across all 529 plans, a cap the 2025 tax law raised for tax years beginning in 2026. ³
• Registered apprenticeships: fees, books, supplies and equipment the program requires. ²
• Student loans: principal or interest on the beneficiary's (or a sibling's) qualified student loans, up to $10,000 over the lifetime of each person whose loans are repaid. ^{2 3}

Don't double-dip with the education credits

The American opportunity credit is worth up to $2,500 per student, and the same dollars of tuition can't both support the credit and come out of the 529 tax-free. ² Families often pay a slice of tuition from regular savings to claim the credit, and the rest from the 529. It is worth planning before the money moves.

Money that comes out for something else

A withdrawal that isn't used for qualified expenses isn't fully taxed. Only the earnings part of it is. That part is ordinary income to whoever receives it, and generally owes an additional tax on top. ² The additional tax is waived in some cases, including the beneficiary's death or disability, a tax-free scholarship (up to the scholarship amount) and attendance at a U.S. military academy. In the scholarship case the earnings are still taxed; only the extra tax goes away. ²

The gift-tax side of contributions

A 529 contribution is a completed gift to the beneficiary. For 2026, gifts up to the annual exclusion of $19,000 per recipient need no gift tax return. ¹

529 plans have a special option: if you contribute more than the annual exclusion in a single calendar year, you can elect to treat the contribution as made evenly over five years, using five years of exclusions at once ³. You make the election on Form 709. ⁵ It is how grandparents front-load an account without using any lifetime exemption, as long as they make no other gifts to that grandchild during those five years. ⁵ My page on the gift tax annual exclusion explains the rest of the gift rules.

The 529-to-Roth rollover

Since 2024, leftover 529 money can move to a Roth IRA for the beneficiary. ⁴ The conditions are strict:

1. The account must have been open for more than 15 years. ⁴
2. Recent money doesn't qualify. Contributions made in the 5 years before the rollover, and the earnings on them, can't be rolled. ³
3. Direct transfer only, trustee to trustee, into a Roth IRA in the beneficiary's own name. ³
4. An annual cap. Each year's rollover is limited to the Roth IRA contribution limit, $7,500 for 2026 for someone under 50, reduced by any other IRA contributions the beneficiary makes that year. ³ That limit is never more than the person's earned compensation for the year, so plan on the beneficiary having a job that pays at least the amount rolled. ³
5. A lifetime cap of $35,000 per beneficiary, across all years. ³

What the rollover does not require is income under the Roth IRA limits: the statute ties it to the contribution limit, not the income phase-out. ³ Moving a meaningful balance takes several years at the annual cap, so the rollover works well as a slow drain for an account that is clearly not going to be needed.

What to gather

• The account's opening date and a contribution history by year.
• Tuition statements (Form 1098-T) and receipts for books, room and board.
• Scholarship letters.
• Any Form 709 filed to spread a large contribution.