James M. Beenders,
CFP®, AAMS®, AWMA®
Partner, President
Chief Planning Officer
A savings vehicle traditionally associated with education funding is gaining recognition for its broader strategic potential: “the 529 Plan”.
While typically used to cover tuition costs, 529 accounts can also help advance your retirement savings, enhance tax optimization, and support estate planning goals.
Whether planning for your child’s education, repurposing unused assets, or strengthening your long-term plan, a 529 can be a powerful addition to your family’s financial strategy.
Understanding 529 Accounts
A 529 plan is a tax-advantaged account designed primarily for education expenses. Contributions grow tax-free, and withdrawals for qualified education costs are also tax-free at the federal level.
Passed in July 2025, the One Big Beautiful Bill Act (OBBBA) expands the flexibility of 529 plans by broadening what counts as qualified expenses:
- Vocational, credentialing, and licensing programs: Tuition, fees, books, supplies and equipment are now recognized as qualified expenses for recognized programs.
- K-12 and higher education support: Tuition, books, online educational materials, certain tutoring services, standardized test fees, dual enrollment fees, and educational therapies for students with disabilities are all eligible.
- Increased K-12 contribution limit: The annual limit for K-12 expenses paid with 529 funds has doubled to $20,000 per beneficiary.1
Rolling Over 529 Plan into Roth IRA
The SECURE Act 2.0 enables a 529 account beneficiary to roll over up to $35,000 into a Roth IRA tax- and penalty-free over their lifetime, provided certain conditions are met.2 By leveraging this rollover, you can potentially transform unused education savings into long-term retirement assets.
Key Considerations
Optimizing Tax and Estate Strategies with 529 Plans
Even if a Roth IRA rollover isn’t an option, 529 plans offer several tax-smart strategies that can significantly enhance your financial planning. This includes:
- Gifting Strategies: Take advantage of the annual gift tax exclusion and contribute up to $19,000 (or $38,000 for married couples) to a 529 plan.3 You can front-load up to five years of contributions in a single year, giving your funds more time to grow tax-free and potentially building a larger balance for future education costs.
- Changing Beneficiaries: If the original beneficiary doesn’t use the funds or pursue higher education, the account owner can change the beneficiary to another qualifying family member without tax consequences.
- State Tax Benefits: Many states offer deductions or credits for 529 contributions in addition to federal tax advantages. Benefits vary by jurisdiction, so it’s important to review your state’s plan to maximize savings and reduce overall tax liability.
- Estate Planning Benefits: Contributions to a 529 plan are typically considered completed gifts for estate tax purposes. Moving assets into a 529 plan can reduce the size of your taxable estate, helping preserve wealth while minimizing estate taxes.
Note: Gift and Estate exclusion amounts are set by the IRS and subject to change, so it’s important to consult with your tax advisor to ensure compliance.
529 Strategies: Frequently Asked Questions
Can I roll over 529 funds into a Roth IRA?
Yes, under the SECURE Act 2.0, beneficiaries can roll over up to $35,000 from a 529 plan into a Roth IRA tax- and penalty-free over their lifetime, if certain eligibility criteria are met.
What if the original beneficiary doesn’t use the funds?
You can change the beneficiary to another qualifying family member without triggering taxes, ensuring the funds remain within your family.
Are there tax benefits beyond federal savings?
Many states offer deductions or credits for 529 contributions, which can further reduce your overall tax liability. Contribution rules and benefits vary by state.
How can 529 plans be used for estate planning?
Contributions are generally treated as completed gifts for estate tax purposes. By strategically funding 529 plans, you can preserve more wealth for future generations while minimizing your estate’s tax burden.
The Bottom Line
By embracing a proactive approach to 529 planning, you can help transform a simple education fund into a versatile element of your family’s long-term wealth plan.
Let’s talk about how 529 plans can complement your retirement, tax, and estate planning strategies.
Sources
1 https://keitercpa.com/blog/beyond-college-savings-how-obbba-expands-power-529-plans/
2 https://www.tiaa.org/public/pdf/f/f41416.pdf
3 https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-ta
As education and retirement planning can be complex, always work with an estate attorney, tax professional, and financial advisor to put all the pieces in place. As always, please feel free to reach out with any questions.
The 529 Plan information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal advice. Tiller Private Wealth does not provide legal advice. Tiller Private Wealth cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Always consult an attorney regarding your specific legal situation.