If you answered ‘yes,’ you’re in a growing minority. As concern grows over enrolling in college degree programs that actually show a negative return on investment, many people who started college savings plans, known as 529 plans, are considering exit paths.
In addition to ROI worries, many parents say they don’t want to tie up money for several years when it’s possible their kids will never use the funds.
“As much as I would love and want to encourage my kids to go to college and further their education, it just might not be what they end up doing,” the New York Times quoted Asha Bailey, 29, who works as a wedding photographer, as saying. “I have no idea the kind of people that they’re going to grow up to be. So, for me, I want to have the most flexibility with that money,” she said, referring to funds now tied up in a 529 plan.
Most 529 plans are more flexible now than they ever were, thanks to the SECURE 2.0 Act, which went into effect in January 2024. It permits unused 529 funds to be rolled into a Roth IRA for the beneficiary, tax and penalty-free, provided certain conditions are met.
- A $35,000 lifetime cap per beneficiary.
- Year-by-year limits tied to annual Roth IRA contribution caps (for example, $7,000 in 2025).
- A 15-year minimum account age before rollovers are eligible.
- Funds must have been in the account for at least five years.
Though family options have expanded, industry analysts caution that rolling over 529 funds shouldn’t be seen as a primary retirement strategy. It’s a contingency, not a workaround.
Pitfalls of 529 Plans
One of the biggest dangers of 529 plans is investing in plans that aren’t generating a significant return. A study from Wharton researchers reveals widespread suboptimal plan selection: 66% of assets and 60% of accounts are in plans that underperform compared to others across states. This misallocation is projected to result in a total loss of $38 billion over 18 years.
Another piece highlights that 529 accounts, when parents invest the funds instead of keeping the money in low-yield savings accounts, offer clear long-term advantages, especially for middle-class families who stand to benefit more than others. Directly opening a Roth IRA may still be a better foundation for retirement savings.
