5 Things You May Not Know About 529 Plans

When most people think about a 529 plan, they think of one thing: saving for college. While that's certainly its primary purpose, today's 529 plans offer more flexibility than many families realize.

Whether you're just beginning to save for a child's education or already have a 529 plan in place, these five lesser-known features can help you make the most of your education savings.

1. You Aren't Limited to Your Home State's 529 Plan

One of the biggest misconceptions about 529 plans is that you must invest in your own state's program.

In reality, you can generally open a 529 plan offered by almost any state. This allows you to compare investment options, fees, contribution limits, and other features before deciding which plan best meets your family's needs.

However, before opening an out-of-state plan, be sure to check whether your home state offers a state income tax deduction or credit for contributions to its own 529 plan. That tax benefit alone may make your state's plan the better choice.

2. Your Plan Can Adapt as Your Family Changes

Life rarely goes exactly as planned—and fortunately, 529 plans are designed with flexibility in mind.

If one child decides not to attend college, receives a scholarship, or doesn't use the full account balance, you can generally change the beneficiary to another eligible family member without triggering taxes or penalties.

You may also transfer assets between eligible 529 plans, giving families the flexibility to adapt as educational goals evolve.

3. Qualified Expenses Go Beyond Tuition

Many families are surprised to learn that qualified education expenses extend well beyond tuition.

Depending on the institution and circumstances, 529 funds may also be used for:

• Room and board
• Required books and textbooks
• Computers and related equipment
• Internet access needed for school
• Other qualified educational expenses

Using 529 assets for these costs can significantly reduce out-of-pocket education expenses over the course of a student's academic career.

4. A 529 Plan Has a Relatively Small Impact on Financial Aid

Many parents worry that saving for college will significantly reduce their child's financial aid eligibility.

Fortunately, parent-owned 529 plans generally have only a modest impact on federal financial aid calculations. Under current FAFSA rules, they are treated as parental assets, with a maximum assessment rate of 5.64%—substantially less than assets owned directly by the student.

For many families, the tax-free growth and tax-free qualified withdrawals far outweigh the potential impact on financial aid eligibility.

5. Unused Funds Can Help Jump-Start Retirement Savings

Perhaps the most significant recent enhancement to 529 plans is the ability to roll unused funds into a Roth IRA for the beneficiary.

Beginning in 2024, eligible beneficiaries may roll over up to $35,000 during their lifetime from a 529 plan into a Roth IRA without federal taxes or penalties, provided several requirements are met. Among them:

• The 529 account generally must have been open for at least 15 years.
• Contributions (and earnings on those contributions) made within the previous five years are not eligible.
• Annual rollover amounts are limited by the annual Roth IRA contribution limit.
• The beneficiary must have earned income at least equal to the amount rolled over for that year.

This provision provides families with additional flexibility and helps alleviate concerns about overfunding a 529 plan.

The Bottom Line

A 529 plan is more than just a college savings account. With tax-advantaged growth, flexible beneficiary options, broad qualified expenses, limited impact on financial aid, and new Roth IRA rollover opportunities, it remains one of the most powerful tools available for education planning.

If you're considering opening a 529 plan—or want to review whether your current plan is still the best fit—our team would be happy to help you evaluate your options and develop a strategy aligned with your family's long-term financial goals.