How A 529 Plan Can Help A Child Save For Retirement

When most people hear “529 plan,” they immediately think of college savings. While that is the primary purpose of these accounts, recent rule changes have expanded how families can use 529 plans. These changes have opened the door for a surprising and powerful secondary benefit: jump-starting a child’s retirement savings.

At its core, a 529 plan is a tax-advantaged investment account designed for education expenses. Contributions grow tax-deferred, and withdrawals used for qualified education costs are tax-free at the federal level. Historically, one of the biggest hesitations families had about funding a 529 was the fear of over-saving. What if the child receives scholarships, chooses a less expensive school, or simply doesn’t attend college at all?

New rules have helped solve that problem and in doing so, have turned 529 plans into a long-term wealth-building tool.

The Roth IRA Rollover Opportunity

Beginning in 2024, unused 529 funds can be rolled over into a Roth IRA for the beneficiary, subject to certain rules. This change allows families to repurpose excess education savings into retirement assets that continue to grow tax-free.

Here’s how it works:

The 529 plan must have been open for at least 15 years.
Contributions and earnings on those contributions made within the last five years are not eligible.
Rollovers are capped at the annual Roth IRA contribution limit, currently $7500 for 2026.
There is a lifetime rollover limit of $35,000 per beneficiary.

While $35,000 may not sound like a large retirement balance, the true power lies in time.

Time Is the Most Valuable Asset

Starting retirement savings early gives compound growth decades to work. If a child rolls $35,000 into a Roth IRA in their early 20s and never adds another dollar, that account could grow significantly by retirement age.

For example, assuming a 7% annual return, $35,000 invested at age 22 could grow to well over $350,000 by age 65—entirely tax-free. That’s a substantial head start that many people don’t achieve until much later in life.

In this way, a 529 plan can act as a bridge account. First in supporting education, then seamlessly transitioning into retirement savings if funds remain.

Flexibility Reduces Risk

This added flexibility fundamentally changes how families can think about saving. Funding a 529 is no longer an all-or-nothing bet on college. Parents and grandparents can contribute knowing that excess funds won’t be wasted or heavily penalized—they can be redirected toward the child’s long-term financial future.

Additionally, the account owner can change beneficiaries. If one child doesn’t need the funds, another family member may benefit, or the account can remain in place for future generations.

A Strategic Planning Tool

Using a 529 as part of a broader financial plan can create multi-generational benefits. Families who start early, contribute consistently, and invest for growth can potentially fund education while also planting the seeds for lifelong financial security.

While 529 plans should not replace traditional retirement savings for parents, they can be a powerful complement—especially for families focused on giving children not just an education, but a financial head start that lasts well beyond graduation.

As always, it is important to consult a tax or investment professional before making these important decisions.

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This document is for educational and informational purposes only and does not constitute an advertisement or solicitation of any securities or investment services provided Mainstay Capital Management, LLC (“MCM”). This document should not be construed as investment, tax, or legal advice, or a solicitation, or a recommendation to engage in any specific strategy. MCM is an independent investment adviser registered with U.S. Securities and Exchange Commission. MCM specializes in workplace savings plan portfolio management and retirement planning advice for active employees and retirees. This document was prepared by MCM primarily based on data collected and analyzed by MCM. The opinions expressed herein are those of MCM alone and are for background purposes only. MCM does not purport the analysis to be full or complete or to constitute investment advice and should not be relied on. In addition, certain information contained herein or utilized to draw the conclusions contained herein has been provided by, or obtained from, third party sources. While MCM believes that such sources are reliable, it cannot guarantee the accuracy of any such information and does not represent that such information is accurate or complete. All materials and information are provided “as is” without any express or implied warranties by MCM. MCM charges its fee based on a percentage of assets under management, which creates an incentive and conflict of interest to increase assets in that account. Furthermore, MCM has two different fee schedules, and therefore has a conflict of interest when assets or accounts move from the lower fee schedule to the higher fee schedule. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Consult your financial professional before making any investment decision. Please see MCM’s Form ADV Part 2A and Form CRS for additional information.