Should you worry about overfunding your 529 plan?

529 college savings plans  are powerful tools to help pay for the mounting costs of an education. Why are some people hesitant to use them?

One common concern is oversaving. You can use 529 funds to cover only  qualified education expenses  without incurring a tax penalty, but it can be hard to pinpoint how much money you actually need.

Many parents open 529s for their children when they are born; they have no way of knowing whether their kids will earn a scholarship or even go to college at all. Fortunately, parents of multiple children can change the beneficiary of a 529 plan.

But what do you do if you still have money left over after covering education expenses?

Thanks to  Secure 2.0, college savers won’t have to worry about overfunding their 529s. Starting this year, you can now  roll over unused 529 funds to a Roth IRA. But don’t think the 529 rollover is a loophole to save extra for retirement; there are rules that limit the conversions.

Here’s what you should consider when converting your 529 funds to a Roth IRA.

The Roth IRA receiving the funds must be in the name of the 529 plan beneficiary.

The 529 plan must be open for at least 15 years.

You cannot convert 529 contributions made within the past five years (or the earnings on those contributions).

The 529 funds you roll over count toward your IRA annual contribution limit.

You can move a maximum of $35,000 from a 529 plan to a Roth IRA during your lifetime.

529 funds must be converted by paying the amount directly to a Roth IRA—you can’t pay yourself and then deposit the money into the Roth IRA later.

You can contribute to a Roth IRA only if you have earnings from a job, so the 529 beneficiary must have eligible earnings when the 529-to-IRA conversions occur.

Roth IRA income limits do not apply to 529 rollovers.

While avoiding the  Roth IRA  income limits is a retirement-saving perk for those with higher income, the rest of the rules around rolling over your excess 529 funds are designed to ensure that people are using 529 plans for their intended purpose: education. The annual contribution limits as well as the lifetime cap on conversions mean that you can’tdouble up on your retirement funding.

So, what’s the bottom line?

The ability to convert unused 529 funds to a Roth IRA can help alleviate potential concerns about oversaving for education. Still, don’t count on your 529 as a means to save for retirement. Instead, consider funding your Roth IRA separately.

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This article was provided to The Associated Press by Morningstar. For more personal finance content, go to  https://www.morningstar.com/personal-finance

Margaret Giles is a content development editor at Morningstar.