Rethinking 529 Plans: Can They Be Used for More Than Just College?

Thanks to recent legislative changes, find out how a 529 plan could help fund your child's Roth IRA or even pay for K–12 education. 

For years, 529 plans were known as a smart way to save for college expenses. They offered tax-free growth and withdrawals when used for qualified higher education costs, making them a go-to for many families looking to plan ahead for tuition. But recent legislative changes have broadened the scope of how these plans can be used—making them even more versatile. 

At Seaside, we’ve been keeping a close eye on how these updates could open new planning opportunities. Whether you’re currently using a 529 or considering starting one, here’s what you need to know. 

1. Using 529 Funds for K–12 Education

Since the Tax Cuts and Jobs Act of 2017, families can now use up to $10,000 per year per student from a 529 plan to pay for K–12 tuition at public, private, or religious schools. But be aware that if you live in California, your withdrawal from a 529 to pay for K-12 education may be subject to state income tax and penalties so give us a call before taking any action.  

What to Consider: This change adds flexibility for families considering private education before college. However, tapping into the account early can reduce the amount available for future college expenses, so planning is key. 

2. Transferring 529 Funds to a Roth IRA 

One of the most exciting changes came from the SECURE Act 2.0, passed in 2022. Beginning in 2024, certain unused 529 funds can be rolled over into a Roth IRA for the beneficiary—without incurring Federal taxes or penalties. 

Here’s the fine print: 

• The 529 account must have been open for at least 15 years. 
• Rollovers are subject to Roth IRA annual contribution limits. 
• There’s a $35,000 lifetime cap per beneficiary. 
• Contributions made within the past five years aren’t eligible to be rolled over. 

What to Consider: This offers a creative way to seed retirement savings for a child or grandchild—especially if the original 529 funds aren’t fully used for education. It also helps reduce concerns that the money might be “trapped” in the plan. Also be aware that in California the earnings portion of the rollover will be subject to income taxes. Theoretically, your child will be in lower income brackets than you when they are younger so this should not pose too big of a problem. 

3. Coordination with Other Tax-Advantaged Accounts

While 529 plans are powerful tools, they should be part of a larger strategy. If your student qualifies for scholarships or attends a less expensive school, it’s worth exploring how leftover funds could support other long-term goals. 

What to Consider: Using a 529 alongside a custodial account (UGMA/UTMA), a Roth IRA (for teens with earned income), or even a trust can offer a more complete approach to education and legacy planning. 

4. Estate and Gifting Benefits 

529 plans also carry estate planning perks. Contributions qualify for the annual gift tax exclusion, and there’s even a special rule allowing you to front-load up to five years’ worth of gifts ($85,000 per individual or $170,000 per couple in 2025) without triggering gift taxes. 

What to Consider: This strategy allows grandparents or parents to reduce their taxable estate while investing in a child’s future—whether for education, retirement, or both. 

Wrapping It All Up 

Today’s 529 plan is more than just a college savings account. For families in Encinitas, Oceanside, San Marcos, and Carlsbad, these plans now support private K–12 education, Roth IRA rollovers, and multi-generational estate planning. 

If you’ve been hesitant to open or contribute to a 529 because of limited uses, it may be time to rethink your strategy. The expanded options make this a powerful, tax-efficient tool for families building wealth and security across North County San Diego.

This commentary reflects the personal opinions, viewpoints and analyses of the Seaside Wealth Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Seaside Wealth Management, Inc. or performance returns of any Seaside Wealth Management, Inc. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Seaside Wealth Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.