529 college savings plans have even more benefits in 2024

As the costs at some colleges near $100,000 a year, families need a savings strategy they can bank on.

Financial experts and plan investors agree that 529 college savings plans are a smart choice for many. And, as of 2024, there are even more benefits, including higher contribution limits and the flexibility to roll unused money into a Roth individual retirement account free of tax penalties.

“There are three pretty significant changes this year,” said Vivian Tsai, senior director of education savings at TIAA and chair emeritus for the College Savings Foundation, a nonprofit that provides public policy support for 529 plans.

Whether the funds are for college or vocational studies, she said, “529 plans are better now than they’ve ever been before and they’re more flexible.”

Here’s a breakdown of everything you need to know.

Even before recent changes, there were already many advantages to a 529 plan. In more than half of all U.S. states, you can get a tax deduction or credit for contributions. Earnings grow on a tax-advantaged basis, and when you withdraw the money, it is tax-free if the funds are used for qualified education expenses.

A few states also offer additional benefits, such as scholarships or matching grants, to their residents if they invest in their home state’s 529 plan.

2. New Roth IRA rollover rules

As of 2024, families can roll over unused 529 plan funds to the account beneficiary’s Roth IRA, without triggering income taxes or penalties, as long as the 529 plan has been open for at least 15 years.

That change follows the Secure Act of 2019, which let 529 users put some of the funds toward their student loan tab: up to $10,000 for each plan beneficiary, as well as another $10,000 for each of the beneficiary’s siblings.

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Previously, tax-advantaged withdrawals were limited to qualified education expenses, such as tuition, fees, books, and room and board. The restrictions loosened in recent years to include continuing education classes, apprenticeship programs and student loan payments. But now, 529s offer much more flexibility, even for those who never go to college, Chris Lynch, president of tuition financing at TIAA recently told CNBC.

“A point of resistance…