Individual retirement arrangements were created to help you save for retirement while 529 plans are designed for education savings. Even if you're done with school, the IRS rules don't allow you to roll money straight from a 529 plan to an IRA. If you do so, you're treated as if you took a 529 plan distribution and made a regular IRA contribution.
TL;DR (Too Long; Didn't Read)
You can't rollover 529 funds to an IRA. You'd have to withdraw the money from your 529 plan, put it in your IRA and handle any penalties and taxes that arise.
529 Plan Withdrawals
Taking money out of your 529 plan may cost you in taxes and penalties if you're not using the money for qualified education expenses in the same year. Qualified expenses for 529 plans include only higher education expenses, such as tuition, fees and, if you're enrolled at least half-time, room and board. Any non-qualified withdrawals are split between your contributions, which come out tax-free, and your earnings, which are taxable. For example, if you finished school three years ago, any earnings you withdraw count as taxable income.
529 Withdrawal Penalties
When you're taking a non-qualified withdrawal, the earnings portion is also slapped with a 10 percent penalty, unless you qualify for an exception. Exceptions include distributions taken from inherited 529 plans after the death of the original beneficiary, suffering a permanent disability and attending a U.S. military academy. You also qualify for an exception for distributions equal to the amount of scholarships or other tax-free assistance received. Unfortunately, there's no exception for rolling the money into an IRA.
IRA Contribution Eligibility
Even though a portion of your 529 plan withdrawal is taxable, that doesn't mean you have compensation that allows you to contribute to an IRA. Compensation only includes your income from working, such as your salary or self-employment income, plus any taxable alimony received.
Plus, to contribute to a traditional IRA, you must be under 70 1/2 years old. For Roth IRAs, your modified adjusted gross income, which includes the taxable portion of your 529 plan distribution, must fall below the annual limits for your filing status. If you don't qualify, anything you put in your IRA, including money distributed from a 529 plan, counts as an excess contribution.
IRA Contribution Limits
Even if you're eligible to contribute to an IRA, your annual IRA contributions can't exceed the annual contribution limit. As of 2019, the maximum contribution is $6,000 if you're under 50 and $7,000 if you're 50 or older. So, if you had a substantial balance remaining in your 529 plan, you might not even be eligible to put it all in your IRA as a contribution. If you contribute more than your annual limit, you owe a 6 percent excess contributions penalty every year you don't correct it.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."