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Sens. Ted Cruz and Lisa Blunt Rochester have proposed removing the $35,000 lifetime limit on rollovers from unused 529 education savings plans to Roth IRAs. The bill would retain current requirements, including annual Roth contribution limits, earned income and account-age rules; it has not been enacted.
Sens. Ted Cruz, a Texas Republican, and Lisa Blunt Rochester, a Delaware Democrat, have proposed a bill to remove the $35,000 lifetime cap on rollovers of unused 529 college savings to a beneficiary’s Roth IRA. The 529 Retirement Enhancement Act of 2026 would retain other restrictions on the transfers, and the proposal would change current law only if Congress passes it and it is enacted.
Under the proposal, eligible account owners could roll over more than $35,000 over time from a 529 plan to a Roth IRA in the beneficiary’s name. The bill would not make the transfer unlimited in any one year: the amount transferred annually would still be subject to the beneficiary’s Roth IRA contribution limit and earned-income requirement. The source report says the other requirements established under the 2022 law would remain in place.
Those requirements include having the 529 account open for at least 15 years before a rollover, and transferring funds that have been in the account for at least five years. The beneficiary must have earned income at least equal to the amount moved in a given year. The report gives the 2026 Roth IRA contribution limit as $7,500 for people under 50, so moving a large balance could take multiple years even if Congress removed the lifetime cap.
Current law, enacted through the SECURE Act 2.0 in 2022, allows up to $35,000 over a lifetime to be moved from a 529 into a Roth IRA, subject to these restrictions. The proposal concerns that lifetime ceiling; it does not eliminate Roth IRA contribution limits or make all 529 withdrawals tax-free.
More Options for Unused College Savings
The bill addresses a concern for families who save for education but later have money left over because a student receives a scholarship, attends a less expensive school or does not go to college. Under existing rules, a 529 is not a use-it-or-lose-it account: funds can remain invested for future eligible education expenses or the beneficiary can be changed to an eligible family member. But taking earnings out for a nonqualified expense generally triggers ordinary income tax and a 10% federal penalty on the earnings, according to the source report.
If enacted, a higher rollover ceiling could give families another way to preserve unused savings for the original beneficiary’s retirement. Roth IRA assets can be withdrawn tax-free when applicable requirements are met. That potential benefit is constrained by the annual contribution limit, earned-income test and account-age rules, so removing the lifetime cap would not provide immediate access to every dollar in a 529 plan.
Financial adviser Paul Stanley told Kiplinger that concern about money going unused and facing taxes and penalties has been an impediment to some families’ 529 saving. Adviser Ernie Wingard said the proposal would improve on the rollover option established by the SECURE Act 2.0. Those are advisers’ assessments of the measure, not a guarantee of its effects on saving behavior or investment outcomes.
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The 2022 Rollover Rules
529 plans are funded with after-tax contributions and generally allow tax-deferred investment growth when funds are used for qualified education expenses. The source report notes that there is no federal annual contribution cap, though plans set state-specific maximum account balances. For 2026, it cites a federal gift-tax annual exclusion of $19,000 per contributor for each beneficiary, or $38,000 for a married couple; eligible contributors may also use a five-year election to front-load gifts.
Congress created the 529-to-Roth rollover option in SECURE Act 2.0, passed at the end of 2022. It allows qualifying unused funds to move into the beneficiary’s Roth IRA over time, subject to its conditions and the $35,000 lifetime maximum. The new bill would alter that one limit, according to the report, rather than replace the framework with unrestricted transfers.
“One of the biggest impediments to people saving money in a 529 was the risk that the money was going to just go to waste (and be subject to taxes and penalties) if the kid didn’t go to college.”
— Paul Stanley, wealth adviser at Arca, as quoted by Kiplinger
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Passage and Final Rules Remain Open
The proposal is a bill, not a change in force. The source material does not provide a committee hearing, vote schedule, likelihood of passage or an effective date. Congress could amend the language, and the restrictions described in the report would apply only as specified in enacted legislation and subsequent guidance.
It is also not clear from the available reporting whether the bill would change how existing plans, prior rollovers or particular account histories are treated. Families should not assume they can currently transfer more than the existing $35,000 lifetime maximum. The proposal would not remove the separate limits on annual Roth contributions or the requirement that the beneficiary have sufficient earned income.
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Congressional Action Would Set Timing
The next substantive development would be congressional consideration of the 529 Retirement Enhancement Act of 2026. The source report does not identify a scheduled hearing or vote. Until the bill advances and becomes law, the SECURE Act 2.0 rules remain the basis for qualifying 529-to-Roth IRA rollovers, including the lifetime cap.
If lawmakers pass the measure, the final text and any implementation guidance would determine when the change takes effect and how it applies to account holders. Families weighing a rollover would still need to check account age, the age of the funds being transferred, the beneficiary’s earned income and the annual Roth contribution limit.
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Key Questions
Has the $35,000 rollover cap been removed?
No. The bill proposes removing the $35,000 lifetime cap, but the source report describes it as proposed legislation, not enacted law.
Would the bill allow an unlimited rollover in one year?
No. The proposal would remove the lifetime maximum, but transfers would still be limited by the beneficiary’s annual Roth IRA contribution limit and earned income. A large balance could take years to move.
What requirements would remain for a rollover?
As described in the report, the 529 account would need to be open for at least 15 years, transferred funds would need to have been in the account for at least five years, and the beneficiary would need enough earned income to cover the transfer. Other current-law requirements would remain under the proposal.
What happens to unused 529 money under current rules?
Funds can remain in the account for future qualified education expenses or the beneficiary may be changed to an eligible family member. A nonqualified withdrawal generally makes the earnings subject to ordinary income tax and a 10% federal penalty, according to the source report.
Source: rss
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