For years, many families hesitated to use 529 education savings plans — and in many cases, that hesitation was understandable.
A 529 plan is designed to help families save for education with valuable tax advantages. But historically, those benefits came with strict rules. If a child chose not to attend college, received scholarships, or simply didn’t use all the funds, families could face income taxes and a 10% penalty on earnings when withdrawing unused money for non-qualified expenses.
For many parents and grandparents, it felt like making a long-term bet on an uncertain future. Today, however, recent rule changes have made 529 plans significantly more flexible — and worth another look.
One of the biggest updates is the ability to roll unused 529 funds into a Roth IRA for the beneficiary, subject to certain requirements and limits. Currently, up to $35,000 may be transferred over time, potentially turning unused education savings into retirement savings instead of triggering penalties.
529 plans have also expanded beyond traditional college expenses. Funds can now be used for trade schools, career training programs, certifications, and vocational education. That means families have more ways to support a child’s future, even if the path looks different from a traditional four-year degree.
In addition, families may now use up to $20,000 annually for eligible K–12 expenses in certain situations, creating more flexibility earlier in a child’s educational journey.
What does this mean for families?
- You’re no longer locked into one educational outcome
- The plan can adapt as goals and opportunities change
- Saving for education doesn’t have to feel all-or-nothing
- Grandparents may still benefit from tax-efficient gifting strategies, including “superfunding” larger contributions upfront
A 529 plan may not be the right fit for everyone. But the conversation around these accounts has changed considerably in recent years.
If you ruled them out in the past, it may be time to revisit the idea and see whether the newer rules align better with your family’s goals.
This article is provided for educational purposes only and is not intended as financial, tax, or investment advice. Readers should consult with a qualified financial professional regarding their individual circumstances. Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. Investing involves risk, including the potential loss of principal. This article is a paid placement. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 4025948 – 5/26
