Have you established, or are you considering, a Section 529 savings plan for a child, grandchild, or other family member?

Such plans are a great way to help pay for a person’s college education. Contributions are not federally tax deductible, but they grow tax-free, and you can withdraw them tax-free to pay higher education expenses.

But what happens if your child or other beneficiary doesn’t use all the money in the 529 account or decides not to go to college? Indeed, many young people are choosing not to attend college these days.

What do you do with the money in an overfunded 529 plan?

Suppose you withdraw the money and use it for non-education purposes. In that case, you must pay regular income tax plus a 10 percent penalty on the earnings (but not on your original contributions).

If you want to keep tax-free treatment for withdrawals, you can change the Section 529 plan’s designated beneficiary to another qualified family member.

But starting in 2024, you have another alternative: roll over the money into a Roth IRA for the beneficiary.

If you satisfy some pretty complicated rules, you can transfer up to $35,000 to a Roth IRA tax-free. When the beneficiary turns 59 1/2, he or she can withdraw the Roth IRA money tax-free for any purpose. At age 59 1/2, the Roth IRA could be worth hundreds of thousands of dollars.

Unfortunately, lawmakers have not gone out of their way to make such rollovers easy. To qualify for tax-free treatment, you must follow the rules below:

• the 529 account must have been in existence for at least 15 years;
• you can only roll over money that has been in the 529 account for at least five years;
• each year, you can roll over an amount equal to the beneficiary’s IRA contribution limit for the year ($7,000 for 2024);
• the beneficiary must have earned income at least equal to the amount of the rollover amount; and
• you must reduce your maximum $7,000 rollover by any contributions the beneficiary makes to a traditional or Roth IRA.

Section 529 plan rollovers to a Roth IRA require a long-term commitment. You need at least five years to transfer the entire $35,000 to a Roth IRA. Such rollovers must also be coordinated with the beneficiary since they impact his or her ability to make IRA contributions.

And there’s the little wrinkle of your state’s rules. The transfers may be subject to state income taxes.

Despite the complexities involved, 529 to Roth IRA rollovers give 529 plan owners who overfund their plans welcome new flexibility in deciding what to do with their unused money.