I’m trying to decide if opening a 529 makes sense in 2025. I make too much to qualify for things like the Lifetime Learning Credit (LLC), and the tax deductions for 529 plans don’t seem as great as they used to be. Should I just keep putting money into my current investments, which are doing really well? I’ve got about 7 years before my kids start college.
One perk of a 529 is that you can roll up to $35,000 of it into a Roth IRA for your kid after 15 years. That’s a solid benefit, in my opinion.
Keaton said:
One perk of a 529 is that you can roll up to $35,000 of it into a Roth IRA for your kid after 15 years. That’s a solid benefit, in my opinion.
Yeah, the $35k limit is a big deal. Even if your kid doesn’t use all the money for college, it’s a nice jumpstart for their retirement or even buying a house.
Keaton said:
One perk of a 529 is that you can roll up to $35,000 of it into a Roth IRA for your kid after 15 years. That’s a solid benefit, in my opinion.
Doesn’t the account need to be open for 15 years to qualify for that? My kid would probably start college in 7 years, so I’m not sure if it’s worth starting now.
@Reagan
That’s true, but you can keep the account open after they graduate. They could roll leftover funds into an IRA down the line.
@Reagan
The 15-year rule applies to the account being open, and funds need to stay in for at least 5 years. Even if you don’t use it all for college, you can still take advantage of the Roth rollover later.
I’ve got $26k of tax-free earnings in one of my 529s. If you plan to fund your kid’s college, the earlier you start, the more benefits you get. Plus, leftover funds can be rolled between accounts or into a Roth IRA if needed. It’s flexible and worth it if you’re serious about saving for education.
Does your state offer any tax benefits for contributing to a 529?
Lennon said:
Does your state offer any tax benefits for contributing to a 529?
In Indiana, we get a 20% tax credit on contributions up to $7,500 per year. That’s $1,500 in free money.
@Blair
That’s a great deal. If your state offers something similar, you should at least contribute up to the max for the tax break. It’s like an employer match for retirement savings—why not take it?
If you plan to use the money for college, a 529 is great because it grows tax-free. Yes, you’ll pay capital gains taxes with a regular brokerage account, but you avoid that with a 529. It really depends on your goals. If you’re confident your kid will go to college or a trade school, a 529 is worth it.
Can you explain what’s making you question the 529 now? Did something specific change in 2025? Also, what does the Lifetime Learning Credit (LLC) have to do with your decision here?
529s are pretty flexible. If your kid doesn’t go to college, the funds can be used for trade school, continuing education, or even a post-grad degree for you or your spouse. You can also transfer it to another family member. Lots of options.
If your current investments are returning strong numbers, stick with what’s working. A 529 has benefits like tax-free growth, but if you’re already seeing great returns elsewhere, it might not be worth the switch.
Here’s what I’m comparing: putting money into a 529 versus my real estate investments, which return 13% before taxes. From what I’ve read, 529 plans don’t seem to have returns like that. I’m asking because I’m not super familiar with 529s.
@Reagan
My kid’s 529 has averaged 12% over the past 5 years and was up 20% last year. I’ve invested everything in an S&P 500 index fund within the plan. With tax-free growth, it’s been worth it for us. Depending on your state, you might also get a tax deduction.
@Jesse
That’s better than I expected! The new Roth IRA rollover option also seems like a good reason to consider it. Thanks for the info!
@Reagan
529s are just accounts—you get to choose the investments. Some plans have options like total U.S. or global equities. If your state gives a tax break, it’s usually best to go with their plan. But if I had a guaranteed 13% return, I’d probably stick with real estate too.