The 529 Rules Have Changed
If You Wrote This Account Off, It May Be Time for a Second Look.
Every spring, something interesting happens in financial planning conversations. The caps fly, the cameras flash, and parents and grandparents start quietly wondering: did we save enough? Did we save it in the right place?
If you've ever looked at a 529 college savings account and thought, “that’s not for us” because maybe your child wasn’t headed to a traditional four-year university, or you were worried about what would happen if they didn’t use the money, we want to revisit that assumption with you.
Because the rules have changed in meaningful ways, and the flexibility you didn’t think existed is now very real.
The Objection That Made Sense…Until Now
For years, the knock on 529 accounts was fair: the money was earmarked. Use it for qualified education expenses or face taxes and a 10% penalty on the earnings. If your child took a different path, it felt like you’d painted yourself into a corner.
That concern hasn’t vanished entirely, but it has shrunk considerably. Here’s what’s changed.
There’s Now a Built-In Backup Plan
One of the most significant shifts in recent years: thanks to SECURE 2.0, up to $35,000 of unused 529 funds can now be rolled into a Roth IRA for the beneficiary, without income taxes or penalties, subject to certain conditions. The account must have been open for at least 15 years, and the rollovers are subject to annual Roth IRA contribution limits.
What that means in plain terms: a 529 that never got “used” for school can still become a meaningful head start on retirement savings. It’s the kind of layered flexibility that turns what once felt like a gamble into something much closer to smart, long-range planning.
529s Aren’t Just for Four-Year Colleges Anymore
The picture of a 529 as a “college account” has always been a little narrow. Today, qualified withdrawals can cover tuition, fees, books, computers, housing, and meal plans at eligible colleges and universities, but also vocational schools, trade programs, certifications, graduate school, and certain apprenticeship programs.
So whether a child is studying engineering or learning to be an electrician, a licensed cosmetologist, or a culinary professional, a 529 may still have a role to play.
More Flexibility Earlier, Too
Starting in 2026, the annual cap for using 529 funds toward K–12 private school tuition rises to $20,000 per year. For families with younger children who are thinking about independent school, that expanded room matters.
And if a family member has existing student loan debt, unused 529 funds can help repay those loans as well, up to a lifetime limit of $10,000 per beneficiary. That makes the account useful even for education that already happened.
A Tool That Works for More Than Just Parents
There are no income limits on 529 contributions, which makes these accounts accessible to families across the income spectrum. It also makes them particularly attractive for grandparents thinking about gifting and estate planning.
When a grandparent contributes to a grandchild’s 529, they’re doing something quietly powerful: moving money out of their estate in a tax-efficient way while investing in the future of someone they love. The accounts grow tax-deferred, and qualified withdrawals are generally tax-free.
Grandparents can also explore superfunding - contributing a larger lump sum upfront using five years’ worth of gift tax exclusion at once, which can accelerate the account’s growth potential.
Is a 529 Right for Everyone?
No. It’s worth saying that plainly. A 529 is one tool among many, and whether it makes sense depends on your specific situation: your timeline, your tax picture, how certain you feel about a child’s educational path, and what else is happening in your financial life.
What we can say is this: the all-or-nothing framing that made some families hesitate in the past no longer holds. The rules have moved considerably in the direction of flexibility, and the tradeoffs look different than they did even five years ago.
If you’ve been putting off this conversation, or if you started a 529 and haven’t looked at it in a while, now is a genuinely good time for a fresh look. We’d love to think through this with you.
The Horst Group is a fee-only financial planning firm serving women, LGBTQ+ individuals, and young professionals. This content is for educational purposes and does not constitute personalized investment advice.