The new 529-to-Roth rollover provision (SECURE 2.0, effective 2024) significantly changed the 529 vs Roth IRA debate for college savings. Here's the updated analysis.
The core trade-off
| 529 Plan | Roth IRA for college | |
|---|---|---|
| State tax deduction | Yes (in most states) | No |
| Growth tax treatment | Tax-free (for education) | Tax-free |
| Annual contribution limit | Very high (gift tax limits) | $7,000/year |
| If child doesn't go to college | 529→Roth rollover (up to $35k) | Keep for retirement |
| Financial aid impact | Counted as parental asset (5.64%) | Not counted for aid |
| Qualified expenses | Education expenses | Anything (withdrawals flexible) |
The new 529-to-Roth rollover (game changer)
The biggest objection to 529 plans — "what if my kid doesn't go to college?" — is now largely resolved. Up to $35,000 of unused 529 funds can roll to the beneficiary's Roth IRA (limited to annual Roth contribution limit, over multiple years, 529 must be 15+ years old). This makes 529 plans a "heads I win, tails I don't lose too badly" proposition.
The optimal strategy
For most families: open both. Max the Roth IRA first (retirement priority, plus can be used for education). Then contribute to 529 for the state tax deduction and higher contribution room. The Roth IRA is the better primary vehicle for smaller amounts due to flexibility; the 529 scales better for larger college savings goals.
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About the author
Enrique 'Kike' Faúndez is an Information Systems and Management Control Engineer from Universidad de Chile, with master’s degrees in Finance from Universidad de Chile and Industrial Engineering from Pontificia Universidad Católica de Chile. He has 15+ years of experience in regulated financial services across finance, operations, and digital product development. He founded CashControlly in Santiago, Chile, with the conviction that personal financial control should not be a privilege, but an accessible and well-designed tool.
- Master's in Finance, Universidad de Chile
- Master's in Industrial Engineering, Pontificia Universidad Católica de Chile
- Information Systems and Management Control Engineer, Universidad de Chile
- AI and ITIL certifications
- 15+ years in regulated financial services
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