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

‘This is like Roth IRA-maxxing' — why everyone’s suddenly raving about 529 plans even when college isn’t on the table Brian O’Connell Mon, September 7, 2026 at 7:30 PM GMT+9 7 min read 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.

Jeff Bezos backs a platform that lets anyone invest in rental homes for as little as $100 — 6 ways to build wealth like a landlord without actually being one

Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake. Here's what it is and 3 simple steps to fix it ASAP

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 specialists say the ability to roll unused 529 dollars into a Roth IRA fundamentally changes how families approach these accounts.

"Prior to the Secure Act 2.0, I observed many clients were reluctant to overfund their 529 plans — even if education was of high value to their family," Nathan Donohue, CEO at Scottsdale, Arizona-based Valence Wealth, told Moneywise. "The fact that the funds could only be used for college or otherwise could face taxes and penalties made many parents feel a certain amount of risk."

Now that anyone can roll over up to $35,000 from a 529 to a Roth IRA, this gives parents the opportunity to help save for college — and give their child a jumpstart on tax-free retirement savings.

"The biggest hurdle to clear is the 15-year account age requirement," Donohue said. "This is why we recommend clients open the account as soon as possible, so that they can hit that requirement ideally before the child graduates college."

College 529 contributors are also using the plans to reduce their own tax liability through so-called "superfunding" large 529 plan contributions.

Basically, superfunding allows 529 plan holders to bank up to five years' worth of total plan contributions in one year while still staying within federal tax gift limits. The current federal annual gift tax exclusion allows anyone to gift $19,000 to a recipient, or $38,000 for married couples. Any higher sum given in a single year remains non-tax-deductible. With college 529 plan superfunding, the contributor can gift up to five years of annual exclusions in one 529 account contribution for a single beneficiary, capped at $95,000 for single plan givers and $190,000 for married couples.

That move not only provides a powerhouse asset boost for the college 529 plan, performance-wise; it also offers ample tax and estate-planning benefits for contributors.

Let's say Madison's grandparents funded 529 plans for her and four of her cousins. By superfunding each of the five plans in a single year, her grandparents would gain a $190,000 taxable estate deduction.

"Superfunding a 529 account may be a strategy to consider for parents or grandparents with sufficient assets who have already considered their own retirement needs, liquidity and other financial goals," Christina Mehltretter, CPA and chief operating officer at Carolinas Financial and Retirement Planning, told Moneywise. "That's key when determining if gifting towards a 529 is part of a larger financial plan."

Choosing the 529 plan superfunding option especially makes sense for high-net-worth families.

"First, it allows more dollars to start compounding earlier and on a tax-free basis," Donahue said. "The sooner money is invested, the greater the effects of compounding. In the case of the 529 plan, those funds now grow and are dispersed on a tax-free basis, provided they are used for qualified education expenses."

In his practice, Donahue said he's seen many high-net-worth families use the 529 plan as an estate planning vehicle. "Due to the fact that you can change the beneficiary to any family member, this creates a vehicle for funding multiple generations of college with tax-free dollars," he noted.

One limiting factor with superfunding is the total lifetime contribution limit for the 529 plan, which varies by state. "For example, in my state of Arizona, the most you can contribute to any 529 plan is $609,000 over the lifetime of the account," Donahue said.

With college 529 plans opening up new financial planning options that go beyond college expenses, parents and grandparents may be tempted to go overboard on funding. That's not a good idea, experts say.

"One mistake I've seen is parents prioritizing their child's education, over and above their own retirement," Donahue added. "We have this saying, 'you can take loans for college, but you can't take loans for retirement."

Here's the average income of Americans by age in 2026. Are you keeping up or falling behind?

Join 250,000+ readers and get Moneywise's best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.

This article originally appeared on Moneywise.com under the title: 'This is like Roth IRA-maxxing' — why everyone's suddenly raving about 529 plans even when college isn't on the table

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.