Are 529 plans “dead”?

Every so often, we hear clients ask if 529 plans are still worth it. Maybe you’ve wondered the same thing. Some parents hesitate to open one because they’re not sure if their child will go to college, or they worry about what happens if a scholarship covers most of the costs.

So, are 529 plans really “dead”?

Not at all. In fact, we’d say the opposite: 529s are more powerful and flexible than ever. Unfortunately, many families miss out because they don’t understand all the ways a 529 can work for them.

What is a 529 plan?

Let’s start here. A 529 plan is a tax-advantaged savings account for education expenses. You put money in, it grows tax-free, and you withdraw it tax-free for qualified education costs. That alone makes it a strong planning tool.

That’s the simple definition. But the real story is much bigger.

Why 529s are so powerful

529 plans have been around for decades, but recent changes in the law have made them more versatile than ever. Here’s what makes them such an important part of many families’ long-term financial strategy (regardless of whether your child may attend a traditional college):

• Tax-free growth on your investment
• Tax-free withdrawals for qualified education expenses
• No income restrictions for contributions
• High contribution limits: through 2026, the contribution limit is $19,000, per person, per child ($38,000 from a couple per child), or up to $190,000 in one year for a married couple (using the 5-year election, also known as “superfunding”)
• Transferable balances from one child or grandchild to another (even cousins or other family members!)
• Control stays with you as the account owner
• Estate tax advantages and intergenerational flexibility
• New benefits from the SECURE Act 2.0, including the option to roll unused funds into a Roth IRA (under certain conditions)

For families who want to set their kids up for success, whether that’s in education or long-term financial security, these features are hard to beat.

What happens to a 529 if your child never goes to college? Here’s what else a 529 can be used for:

This is the most common hesitation we hear. The good news: a 529 isn’t limited to a traditional four-year university.

You can use a 529 for:

• Private K-12 tuition (up to $10,000 per year)
• Higher education tuition, books, housing, and tech
• Registered apprenticeship programs
• Certain student loan repayments
• Eligible rollovers into Roth IRAs (with conditions)

And remember: if one child doesn’t need the funds, you can transfer them to another child, grandchild, or qualifying family member, all without penalties.

Bottom line: 529 plans don’t lock you into a narrow path. They open up options, no matter which educational or career route your child takes.

What happens to a 529 if your child gets financial aid?

Some families also wonder what happens if their child earns a scholarship or qualifies for aid. In our experience, scholarships and aid rarely cover 100% of costs.

A 529 can still be used for rent, utilities, laptops, and meal plans, which scholarships or financial aid often leave uncovered.

Are there alternatives to a 529?

Yes, and sometimes they make sense. For example, UTMA accounts (Uniform Transfers to Minors Act) can be used for a wider range of expenses, like weddings. But they come with significant drawbacks:

• No tax-free growth
• Funds automatically transfer to your child at age 18 or 21, giving them full control (whether they’re ready or not)

The right plan depends on your goals, your children, and your overall financial strategy. That’s why we encourage families to look at the full picture. Education planning isn’t about one single account. It’s about choosing the right strategy for your family’s goals today and tomorrow.

The takeaway

529s aren’t dead. Far from it. They’re one of the most effective, flexible, and tax-smart tools available for education planning, and they can create lasting benefits well beyond school years.

The real question isn’t whether 529s are worth it. It’s whether you’re using them in the smartest way possible for your family.

Curious how a 529 plan (or another strategy) could fit into your financial picture? Let’s talk. We’ll help you weigh the options, make a plan, and put your family’s goals on track.

Please consider the investment objectives, risks, charges, and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.

529 plan funds are eligible to be rolled to a Roth IRA for the same beneficiary if certain conditions are met. The 529 plan must be open for at least 15 years, and the rollover counts toward annual Roth IRA contribution limits. There’s a lifetime cap of $35,000, and the beneficiary must have earned income equal to the amount transferred. Please consult your tax and financial advisors to understand how this may affect your situation.