‘This is like Roth IRA-maxxing' — why everyone’s suddenly raving about 529 plans even when college isn’t on the table

In recent times, there has been a surge in contributions to college 529 plans, with American households holding over $600 billion in assets across 19.9 million accounts by the end of 2025, according to the Education Data Initiative. Contrary to the traditional purpose of 529 plans, which are primarily for college savings, many Americans without plans to attend college are now using these accounts as a retirement booster.

Jeff Bezos has even endorsed a platform that allows anyone to invest in rental homes for as little as $100, highlighting the growing appeal of alternative wealth-building strategies.

The SECURE 2.0 Act, enacted in late 2022, has further bolstered the popularity of 529 plans by simplifying the process of transferring funds from these accounts to a Roth IRA. This tax- and penalty-free transfer is permitted up to a lifetime limit of $35,000, often referred to as "Roth IRA-maxxing." Financial advisor Robert Jeter of Back Bay Financial Planning & Investments has praised this provision, stating that it enables individuals to make the most of every dollar.

To illustrate the potential impact of this rule, consider Madison, an 18-year-old who has accumulated $30,000 in her 529 plan savings after her parents opened the account when she was three years old. Madison intends to become a police officer and will not use the funds for college expenses. Under government guidelines, if Madison's 529 fund assets are not used for qualified education expenses, the $30,000 may be subject to federal taxes, potentially amounting to $3,000 or more.

However, with the new 529 plan rules, Madison's parents can contribute $7,500 annually to a Roth IRA over four years, effectively transferring the entire $30,000 to a tax-advantaged retirement account. If Madison retires at age 67 and invests wisely, this could add around $500,000 to her retirement savings.

However, there is a significant caveat: the 529 account must remain open and active for a minimum of 15 years. Additionally, contributions to a 529 plan are not tax-deductible, although some U.S. states offer tax breaks on contributions. Retirement planning specialists emphasize that the ability to roll unused 529 dollars into a Roth IRA has fundamentally changed how families approach these accounts.

Prior to the SECURE 2.0 Act, many clients were hesitant to overfund their 529 plans due to the risk of losing funds if they were not used for college expenses. Now, with the option to roll over up to $35,000 to a Roth IRA, parents can save for college while also providing their child with a head start on tax-free retirement savings.