How to Use a 529 Plan as a Smart Way to Save for Your Education Like the Wealthy

Student loans are one of the major reasons why Millennials are experiencing a decrease in their net worth, according to Forbes. This nearly $2 trillion (yes, trillion!) issue holds many people back from building wealth due to high interest rates and expensive monthly payments. Going to school without student loans is the dream, and a 529 plan is a financial tool that makes that dream a reality!

Start saving for your education with a 529 plan. This financial tool is designed to allow your contributions to grow tax-free, as long as the funds are used towards educational expenses. Whether you’re planning to go back to college or want to get a head start on saving for your child’s college, a 529 plan is the secret to how the wealthy save for college.

New Changes to the 529 Plan (2025)

Head’s up! The 529 savings plan just got even better, and most people haven’t even heard about it. The 2025 “One Big Beautiful Bill” Act, or the Trump Bill, just changed the way we save for college, and it can have some major benefits for people with a 529 plan!

Here are the new changes to the 529 Plan from the One Big Beautiful Bill:

·       Expanded qualified expenses for K-12 and college

·       Increased withdrawal limit up to $20,000 per year for K-12

·       Can now be used for qualifying expenses for trade school programs

Here’s what that means for your college savings.

How to use 529 Savings Plan funds

New changes to the 529 plan introduced even more options for how you can use the funds. If you’re considering starting a 529 savings plan, here are ways to use the money:

Pay for qualified expenses

Expanding the categories of expenses covered by the 529 plan is one of the biggest advantages of the Trump Bill. Originally, funds from the 529 plan could only be used towards tuition costs. However, here are the current categories that funds from your 529 savings plan can be used for (as of 2025):

·       Tuition & fees

·       Textbooks, school supplies

·       Computers and other equipment

·       Online materials

·       Tutoring

·       Standardized test fees

·       Room and board

Using your 529 savings for expenses that fall into either of these categories can be used tax-free.

Transfer it to another family member

Only one person, referred to as the beneficiary, is entitled to the funds accumulating in your 529 plan. However, life happens from the time you set up the 529 savings plans and when your child reaches continuing education age. If your child gets a full-ride scholarship or decides not to go to college or a trade school, you can repurpose the funds inside the savings plan. Rules for the 529 Plan allow you to change the beneficiary to another family member. You can select another child, a niece, a grandparent, or even for yourself if you get the urge to go back to school.

Another Bonus: Roll over your 529 savings plan into a Roth IRA

Let’s be honest—it’s never too early to start saving for retirement. And with the 529 plan’s rollover rules, not a moment is wasted towards building your wealth. Starting a 529 savings plan early for a beneficiary gives the money more time to grow--set up one for your child at birth, and the funds will have 18 years to grow and compound to pay for college. For example, you might have up to $35,000 of unused funds from your 529 Savings Plan that can be transferred tax-free into a Roth IRA account for the beneficiary.  The beneficiary could be you.

Suppose your child gets a full ride to college after you’ve saved for years in the 529 plan. Roll $35,000 into a Roth IRA at age 18, and it could grow to over $1 million (based on an average 8% return every year) by the time they retire!

Withdraw the funds (with penalties)

Money that you save inside a 529 savings plan is all yours! One option is always simply withdrawing the funds for use outside of educational expenses. However, it’s not recommended due to withdrawal penalties. The tax-free advantages of the 529 savings plan are only applicable when the funds are used for qualified educational expenses. School-related expenses that don’t qualify include things like buying a car for school and extracurricular activities. If you use the funds for non-qualified expenses, a 10% withdrawal penalty will be applied, plus the amount will be subject to income tax.

When should you start a 529 Savings Plan?

The cost of education continues rising. Think like the wealthy and start saving for the expensive cost of education as soon as possible to benefit from the power of compound growth. The amount you invest per month into a 529 savings plan and the number of years it has to grow can significantly impact the amount of money available to pay for school.

Most 529 savings plans are established for children by their parents. See the chart below to see why starting early is recommended:

According to Business Insider, the average cost for an in-state four-year college is $11,610. For out of state, the average cost is $30,780 per year. There are no limits to how much you can contribute to a 529 savings plan. However, you should be aware of annual gifting limits, and that some states offer tax credit limits that may apply.  Additionally, please note that any unused funds are subject to the restrictions outlined in the plan.

Get started with your college savings

Start today preparing for higher education and you’re one step closer to becoming one of the wealthy! Allocating funds into a 529 savings plan is a smart way to have the money you need to pay for education.

Explore your options for setting up a 529 savings plan by speaking with a financial advisor at Paycheck to Wealth today.