Recent changes to 529 college savings plans, especially those introduced by the SECURE 2.0 Act, are making these accounts even more flexible and valuable. Though legislation passed in 2022, several important updates went into effect starting in 2024.
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New: 529-to-Roth IRA Rollovers
One of the biggest changes is the ability to roll over up to $35,000 from a 529 plan into a Roth IRA tax- and penalty-free.
This gives leftover education savings a second life by boosting your child’s retirement savings. However, there are a few key rules to know:
The 529 account must be at least 15 years old.
If you open an account today, you can’t begin rollovers until 2040.
Rollovers are subject to annual Roth IRA contribution limits.
You can’t transfer the full $35,000 all at once.
The beneficiary must have earned income equal to or greater than the rollover amount in a given year.
Only contributions and earnings more than 5 years old are eligible for rollover.
The Roth IRA must be in the name of the 529 plan’s beneficiary.
These new rules help address a common concern: what happens if the beneficiary doesn’t use all the funds for education? Now, instead of paying penalties on leftover money, you can redirect it to their retirement.
Gift Tax Limit Increase
While there’s no federal cap on how much you can contribute to a 529 plan annually, contributions are considered gifts for tax purposes. There are still state limits on total contributions over the lifetime of the account, however.
For 2025, the annual gift tax exclusion has increased to:
$19,000 per individual
$38,000 per married couple
This means you can contribute more to a child’s 529 plan without needing to file a gift tax return.
Another thing to consider is a multi-year gift. This isn’t a new thing, but not many people know about it. The IRS allows a special rule for 529 plan contributions where you can “superfund” the account by contributing up to 5 years’ worth of the exclusion at once. This is called 5-year gift tax averaging. To do it, you must
Contribute up to 5 times the current yearly exclusion ($90,000 in 2025)
File an IRS Form 709 and check the box for 5-year averaging
Don’t give any additional gifts to that recipient during the 5-year period
This exception allows you to benefit from the compounding effects of investing a large amount of money without triggering the gift tax.
Expanded Qualified Education Expenses
529 plans have also become more flexible in terms of what counts as a qualified education expense:
Up to $10,000 per year can be used for K-12 tuition (per beneficiary).
You can also use up to $10,000 (lifetime limit) to repay student loans for each beneficiary.
Additional proposals to expand this list further have been introduced, but none have passed yet.
FAFSA Reporting Improvements
Starting with the 2024-2025 school year, there’s good news for families receiving 529 distributions from non-parent owners (e.g., grandparents):
These distributions no longer count as student income to the FAFSA.
This can increase financial aid eligibility significantly.
Some families may even consider transferring 529 ownership to grandparents to take advantage of this rule. However, this can have other tax or financial planning implications, so it’s best to consult a CPA or financial advisor before making any changes.
Other Things to Remember
529 plans offer a high level of flexibility when it comes to eligible expenses, beneficiary changes, and potential state tax advantages.
You’re not limited to using 529 funds just for tuition. Qualified education expenses also include textbooks, school supplies, computers, and even internet access, as long as they’re used at least in part for educational purposes. Room and board, K-12 tuition (up to $10,000 per year), and even certain apprenticeship programs or student loan repayments can also qualify.
You can change the beneficiary of a 529 plan at any time without penalty, as long as the new beneficiary is a qualified family member. This includes siblings, children, parents, nieces and nephews, aunts and uncles, in-laws, and even yourself. That flexibility makes it easy to reallocate funds if, for example, one child gets a scholarship or decides not to attend college.
State tax benefits vary. Some states offer income tax deductions or credits for contributions, while others don’t. Many allow residents to open a 529 plan with another state, giving you the option to shop around for plans with lower fees, better investment options, or stronger tax incentives.
Final Thoughts
These updates make 529 plans more versatile than ever, helping families not only save for college but also support long-term financial goals like retirement.
If you’re wondering:
Whether a 529 plan is right for your family
How these changes affect your current strategy
Or how to open and manage an account
We’re here to help. Give us a call or send us an email. We’d be happy to walk you through the details and help you make the most of your education savings.
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