The freedom to learn your way: Alternative uses for your 529 plan

529 savings plans have long been one of the most effective strategies for saving for college. However, they can do much more than simply funding higher education. From helping fund alternative educational pathways to jump-starting retirement savings, today’s 529 plans offer significantly more flexibility than they used to. Let’s look at some potentially valuable ways to put your CollegeBound 529 savings to work.

Cover more than college tuition

529 plans are no longer exclusively for four-year universities. As of 2024, qualified expenses now include a wide variety of educational paths, including community colleges, vocational and trade schools, and even registered apprenticeship programs. That’s a big deal for families whose children want to pursue a skilled trade at a young age. So, if your child enrolls in a qualifying culinary institute or coding bootcamp, for example, 529 funds can potentially help cover tuition, fees, books, supplies, and room and board.

Even K-12 education is eligible in certain cases. Federal law allows up to $10,000 per year, per student, to be used for tuition at elementary or secondary public, private, or religious schools. This gives families added flexibility to support their child’s academic journey earlier in life, in the environment that best fits their learning needs.

Pay down student loans

For many graduates, student loan payments are a huge financial burden. Fortunately, 529 plans can now help relieve that pressure. You can use up to $10,000 of a 529 account’s balance to repay the beneficiary’s student loans. On top of that, you can use an additional $10,000 per sibling to repay their loans as well.

These loan repayments are considered qualified distributions under federal rules, meaning you won’t pay income tax or penalties on the withdrawals¹. While this benefit is unlikely to cover an entire student loan balance, it can certainly make a meaningful dent, especially when combined with other planning strategies.

Roll over unused funds to a Roth IRA

Another exciting update for 529 plans arrived in 2024: the ability to roll over leftover funds into a Roth IRA. This change allows families to convert unused college savings into retirement savings — an effective way to give young adults a head start on their path to financial freedom.

But keep in mind the rollover option comes with a few caveats: the 529 account must have been open for at least 15 years, and any contributions (and the earnings on those contributions) made in the past five years aren’t eligible for rollover. Rollovers must stay within annual Roth contribution limits (currently $7,000 per year for those under age 50), and the lifetime cap is $35,000 per beneficiary.

If your child receives a scholarship, chooses a less expensive school, or simply doesn’t use all the funds, this strategy can help avoid unnecessary taxes and penalties. It’s a great reminder that 529 savings don’t go to waste. Rather, they can evolve with your child’s goals and support them well beyond their years in the classroom.

Final thought

Whether your child ultimately heads to college, learns a trade, or steps into the working world earlier than anticipated, a CollegeBound 529 plan offers options that can adapt to their journey. Be sure to talk with your financial professional so you can take full advantage of what your plan has to offer.