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

Americans are throwing big cash sums into college 529 plans, with U.S. households holding about 19.9 million total accounts, representing over $600 billion in assets by the end of 2025, according to the Education Data Initiative .

Now, Americans with no plans to attend college are using 529 plans as a retirement-plan booster.

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The SECURE 2.0 Act , passed by Congress at the end of 2022, made this process easier by overhauling key components of the U.S. retirement landscape and providing more flexibility in how 529 owners deploy funds. In particular, a key provision that launched on January 1, 2024, lets program beneficiaries transfer, tax- and penalty-free, up to a lifetime limit of $35,000 from a 529 to a Roth IRA.

"This is like Roth IRA-maxxing," said Robert Jeter, a financial advisor at Back Bay Financial Planning & Investments told Bloomberg . "If somebody brought this to me, I'd be like, 'Man, you're really after every last dollar.'"

Consider Madison, an 18-year-old college 529 plan recipient who's accumulated $30,000 in program savings after her parents opened up the plan when she was three years old. Instead of attending college, Madison intends to become a police officer and won't use the 529 plan money for tuition and room-and-board. Under government mandates, if Madison's 529 fund assets aren't used for qualified college expense purposes, the fund's $30,000 may be subject to federal taxes, which could amount to $3,000-plus.

Under the new 529 plan rules, Madison's parents can, over four years, put $7,500 annually into a Roth IRA until the full $30,000 is transferred. After year four, Madison has an extra $30,000 earmarked for retirement, which, if she retires around age 67 and invests the cash wisely, could add about $500,000 to her retirement coffers.

A sizable caveat is attached to the new 529 plan/IRA rule: the 529 account must be open and active for 15 years. Additionally, any contributions to a 529 plan aren't tax-deductible, although many U.S. states do offer a tax break on 529 plan contributions.

Retirement planning gets a reset with the 529 rule