As the landscape of education financing evolves, 529 plans remain a pivotal tool for families aiming to fund their future educational expenses. Recent developments have introduced new opportunities and considerations for these tax-advantaged accounts.
What Are 529 Plans?
A 529 plan is a tax-advantaged savings plan sponsored by the state or an educational institution designed to encourage saving for future education costs. 529 plans offer tax advantages, flexibility, control, and high contribution limits. Earnings in a 529 account are tax-deferred, and withdrawals are tax-free when used for qualifying educational expenses. They can be used for college tuition and fees, educational supplies expenses, apprenticeships, and K-12 tuition and student loan repayments up to a certain limit. They typically offer high contribution limits, and although the account owner maintains control of the funds, the beneficiary can be changed. Some states offer tax breaks for 529 contributions. However, withdrawals for nonqualifying costs are subject to tax and penalty.
Key Updates:
- Expanded Flexibility: The SECURE 2.0 Act, effective as of 2024, allows beneficiaries to roll over up to $35,000 from a 529 Plan to the beneficiary's Roth IRA, tax and penalty free, provided that the account has been open for at least 15 years. Rollovers are subject to annual Roth IRA contributions, which currently stand at $7,000 for those under 50 years old and $8,000 for those over 50 years old. Contributions made to the 529 plan in the five years before the rollover are not eligible for the tax-free rollover, and the beneficiary needs to have an earned income equal to or more than the contribution to move any 529 funds into a Roth IRA. This change allows 529 plans to be used for both education and retirement savings, will enable beneficiaries to start saving for retirement, and is particularly valuable for beneficiaries who do not end up attending college.
- Market Volatility Considerations: Given the current economic climate, it is essential at this time to regularly monitor and adjust your 529 investment allocations. We tailor clients' 529 plans to prepare for the unexpected and make sure that we set realistic expectations and consider that a market downturn could occur during college tuition payment periods. Making regular contributions as early as possible and investing aggressively in the early stages to benefit from long-term compounding and market growth is essential. We advise our clients to gradually de-risk their portfolio as their child enters their high school and college years and recommend they move their investment into a money-market fund or short-term bonds. To reduce any fears of clients over-saving for college, we remind them that unused 529 funds can be rolled over into a Roth IRA for the beneficiary.
- State-Specific Benefits: While 529 plans are federally tax-advantaged, many states offer additional incentives, such as tax deductions or credits for contributions. Understanding your state-specific benefits and how you may integrate them with your overall savings strategy is essential.
Our Recommendations and Thoughts:
At Timbuktu Capital Management, LLC (TCM), we understand that saving for education is about more than just numbers–it’s about preparing for one of life’s most important investments. Whether you are planning for your child’s future, considering graduate school, or rethinking how to use remaining 529 plan balances, at TCM, we are committed to guiding our clients through the intricacies and stress of education savings and are here to provide personalized, forward-looking advice.
By staying informed and proactive, together as a team, we can maximize the benefits of your 529 plans and college saving strategy, and secure a financial future for your child's or beneficiary's educational goals.
As a team, we would like to emphasize the importance of conducting regular reviews of your 529 plan to ensure it aligns with your financial goals, current market conditions, withdrawals are used for qualified educational expenses to maintain tax advantages and avoid penalties, and is integrated effectively into your broader financial plan. As rules evolve and markets shift, we're committed to helping you stay informed and make confident decisions. Let us help you build a strategy that not only supports your education goals but fits seamlessly within your complete financial picture.
References and Recommended Articles:
Carrns, A. (2025, May 16). Want a Gift for Opening a 529 College Savings Account?. The New York Times. https://www.nytimes.com/2025/05/16/your-money/college-savings-529-plans.html
Secure 2.0: How it affects 529 plans. my529. (2025, January 15). https://my529.org/secure-2-0-how-it-affects-529-plans/#:~:text=Effective%20January%202024%2C%20SECURE%202.0%2C%20a%20new,to%20expand%20employee%20participation%20in%20retirement%20plans.
Siegel Bernard, T. (2025, April 13). How Should You Invest for College During Market Swings?. The New York Times. https://www.nytimes.com/2025/04/13/business/529-investments-stock-market.html
White, J. (2025, March 25). 529 to Roth IRA: Rollover Rules, Conversion Guide, and FAQs. Saving For College. https://www.savingforcollege.com/article/roll-over-529-plan-funds-to-a-roth-ira#:~:text=With%20the%20new%20regulations%2C%20529,start%20a%20beneficiary’s%20retirement%20savings.
Published August 4, 2025
Written May 20, 2025
