Key Takeaways
- The Benefit: Tax-free growth and tax-free withdrawals for education.
- The Flexibility: Use it for Tuition, Books, Room & Board, or even Apprenticeships.
- The Safety Valve: New laws allow you to roll unused funds into a Roth IRA (up to $35k).
Introduction
The cost of college has outpaced inflation by 2x for decades.
If you don't want your child buried in student loans, you need a plan. The 529 Plan is the government's gift to parents.
Deep Dive: Tax-Free Education
How It Works
It works like a Roth IRA for school.
- Contribute: You put after-tax money in. (Some states give you a state tax deduction).
- Invest: You pick an investment option (usually a target-date fund based on the child's age).
- Withdraw: When they go to college, you pay the bills from this account. Zero Taxes on the gains.
What if they don't go to college?
Parents used to fear this. "What happens to the money?"
- Change Beneficiary: give it to another child (or yourself!).
- Roth IRA Rollover (SECURE 2.0 Act): If the account has been open for 15 years, you can roll up to $35,000 into a Roth IRA for the beneficiary. This is a game-changer. It basically becomes a retirement head-start.
Summary
Open a 529 as soon as the baby gets a Social Security Number. Even small amounts compound over 18 years.
