For years, 529 plans have been a go-to option for families looking to save for college. They offer tax advantages, flexibility, and a relatively straightforward setup. But with the landscape of education shifting—more trade programs, fewer kids following the traditional four-year college path—you might be wondering:
Are 529 plans still the right move?
The short answer: in many cases, yes. But let’s take a closer look.
What a 529 Plan Actually Offers
At its core, a 529 plan is a tax-advantaged savings account for education expenses. You contribute after-tax dollars, the money grows tax-free, and withdrawals are also tax-free if used for qualified education expenses. That includes tuition, room and board, books, and now even some K-12 costs and apprenticeship programs.
One of the standout features is the high contribution limit. Most plans let you sock away over $300,000, depending on your state. And you retain control of the account, even after your child reaches adulthood.
But here’s where things get more interesting.
The Roth IRA Rollover Rule
As of 2024, unused 529 funds—up to $35,000—can now be rolled into a Roth IRA for the beneficiary. There are some conditions (the 529 must’ve been open for at least 15 years, and contributions from the past five years don’t count toward the rollover), but still, this is a big deal.
Why? Because it reduces the “what if they don’t go to college?” anxiety.
Before, if your child didn’t use all the funds, you’d be looking at penalties for non-qualified withdrawals. Now, there’s a potential off-ramp that can turn unused funds into a head start on retirement savings.
We’ve talked with families who are relieved to have this option. It makes the 529 feel less like a gamble.
Flexibility Is Expanding, But It’s Still a Specialized Tool
To be clear, 529 plans aren’t a perfect fit for everyone.
If your child ends up receiving a full scholarship or decides not to pursue post-secondary education, there’s still some planning to do. Sure, you can change the beneficiary to another family member. But if you don’t have anyone else to use the funds, and the Roth rollover limit is maxed out, you're back to facing potential taxes and a 10% penalty.
Also, not every education expense qualifies. That’s easy to overlook in the moment, especially when your child’s laptop crashes mid-semester and you assume it counts.
So while the rules are improving, it still takes careful planning.
Who Might Want to Revisit Their Plan
If it’s been a while since you looked at your 529, it may be worth reviewing it with your advisor. A few specific scenarios come to mind:
You opened the account more than a decade ago and haven’t adjusted it.
You’re concerned about overfunding—or underfunding.
Your child is getting close to graduation, and you’re unsure how best to use (or preserve) the remaining balance.
You’re thinking about opening a new 529 for a grandchild or family member but aren’t sure if it’s still the best vehicle.
We’ve seen clients make small updates that lead to big improvements in how they use their 529, whether it's optimizing investment choices or aligning withdrawals with actual expenses.
Final Thought
529 plans are still a powerful planning tool. Maybe even more so now, with the Roth rollover option in play. But like any tool, they work best when used intentionally, and when they’re reviewed every so often to make sure they still fit your bigger picture.
If you’d like to talk through this issue or any other topic on your mind, please don't hesitate to contact us. We are here to help.