State Tax Treatment of 529-to-Roth IRA Rollovers
By now, most of you probably know about the SECURE 2.0 Act provision permitting 529 funds to be rolled over to Roth IRAs. Because of this new law, parents and grandparents can fund 529 plans without worrying as much about having to pay taxes and penalties if the funds aren’t used for qualified education expenses.
But this rollover opportunity comes with several restrictions. For example, the maximum lifetime amount you can roll over is $35,000; the 529 plan must have been open for at least 15 years; the rollover amount cannot exceed the annual Roth IRA contribution limit; and the rollover must be aggregated with “regular” IRA or Roth IRA contributions made for that year. If all of these requirements are met, the rollover is tax and penalty-free for federal tax purposes.
However, that’s not necessarily true for state tax purposes. States differ in their treatment of 529-to-Roth IRA rollovers. Of course, this isn’t an issue for the 9 states that have no state income tax to begin with: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. (Note that Washington state taxes some long-term capital gains.)
The following information comes from a very useful website run by Paul Curley, CFA: Status Board: State Income Tax Treatment on 529 Distributions to Roth IRAs and is current as of September 17, 2025:
Most states with state income taxes have said they will follow federal law. These 30 states are: Alabama, Arizona, Arkansas, Connecticut, Delaware, Georgia, Hawaii, Iowa, Idaho, Illinois, Kansas, Kentucky, Maine, Maryland, Mississippi, Montana, Nebraska, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Virginia, West Virginia and Wisconsin.
Many states allow residents to take a state tax deduction or credit for 529 plan contributions made to that state (or, in some cases, to any state’s) 529 plan. Of those states, 7 states (and the District of Columbia) have indicated that 529 savers may be subject to state income tax “recapture” if 529 funds are transferred to Roth IRAs. This means residents of these states who took a state tax deduction or credit would have to pay it back if they do a 529 rollover. These states are: Indiana, Louisiana, Massachusetts, Michigan, Minnesota, Utah and Vermont.
California stands alone. Its residents who do a 529-to-IRA rollover will be subject to both state income tax and an additional 2.5% California tax on earnings. (California does not allow a state tax deduction for 529 contributions.)
Finally, in 3 other states, a decision on state tax treatment is still pending: Colorado, Missouri, and New Jersey.
Paul Curley’s website is a great resource, but before doing a 529-to-Roth IRA rollover be sure to consult with a tax specialist about state tax treatment.
By Ian Berger, JD
IRA Analyst
Ed Slott and Company, LLC
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Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.