The Senate is examining S. 5550 known as the 529 Retirement Enhancement Act of 2026. Sponsored by Sen. Ted Cruz (R-TX) and Sen. Lisa Blunt Rochester (D-DE), the measure would erase the $35,000 lifetime limit that currently restricts moving unused 529-plan balances into a beneficiary’s Roth IRA. All other conditions introduced by the SECURE 2.0 Act – the 15-year account age rule, the five-year contribution look-back, and the annual Roth contribution ceiling – would stay exactly as they are.
What the bill changes and what stays the same
Under existing law, a rollover from a 529 plan to a Roth IRA can only total $35,000 per beneficiary over the life of the account. The new legislation would remove that ceiling entirely. The annual amount a beneficiary may receive would still be limited by the Roth IRA contribution limit, which the IRS set at $7,500 for 2026 reduced by any other IRA contributions made that year. The other eligibility tests remain untouched:
- The 529 account must have been open for at least 15 years for the beneficiary.
- Contributions made in the five years prior to the rollover – and the earnings on those contributions – cannot be transferred.
- The beneficiary must have earned income for the year of the rollover.
- Traditional Roth-income limits do not apply to these specific rollovers.
If Congress passes the bill and it is signed in 2026, the first rollovers exceeding $35,000 could occur in the 2027 tax year. Families with large balances will have to spread transfers over many years, because the annual Roth limit becomes the only bottleneck.
Who stands to gain the most
Mid-2025 data show that 529 plans hold roughly $568 billion across 17.3 million accounts averaging about $32,900 per account – just shy of the current lifetime cap. Households that have saved well above that average, or those whose children receive full scholarships, would benefit most from an uncapped rollover. For a beneficiary with a $60,000 surplus, the annual $7,500 limit means the transfer would take eight years; a $100,000 surplus would require fourteen years.
Because each rollover counts against the beneficiary’s own Roth contribution limit, a young adult who does not already max out the Roth can treat the transferred amount as a tax-free boost to retirement savings. Conversely, a contributor who already maxes out the Roth will simply replace prior contributions, not add extra savings.
State-level quirks and practical considerations
While the proposed federal rule would treat the conversion as a qualified distribution, not every state follows suit. California for instance, currently classifies a 529-to-Roth rollover as a non-qualifying distribution, meaning the state could impose both income tax and a penalty on the transferred amount. Families residing in such states must verify local tax treatment before proceeding.
Another nuance involves changing the 529 beneficiary. Vanguard notes that swapping the beneficiary to a sibling could reset the 15-year clock, depending on future IRS guidance. Bill sponsors have not addressed that scenario, so families should confirm eligibility if they plan a beneficiary change followed by a rollover.
Legislatively, the proposal now moves to the Senate Finance Committee, which drafted the original SECURE 2.0 rollover provision. Neither Senator Cruz nor Senator Blunt Rochester sits on that committee, so a companion bill or committee co-sponsor could be crucial for the measure’s survival. Until such action occurs, the $35,000 cap remains in force.
