global Tax New Path for 529 Plans: Can You Boost Retirement Savings While Paying Off Student Loans? January 05, 2026 Do you have leftover 529 plan funds? Thanks to recent tax law changes, you can now use them to pay off student loans, cover K-12 tuition or even roll them into a Roth IRA (penalty free). Here’s what you should know. Quick Takeaways Leftover 529 funds? You now have more options than ever.SECURE Act 2.0 allows rollovers into Roth IRAs and up to $10,000 (lifetime limit) toward student loan repayment.You can also use 529s for K–12 tuition (tax-free).OBBBA clarified that these strategies remain intact post-reform, giving families more confidence to plan.The 15-year rule and contribution limits still apply, so timing and documentation matter. Why This Matters Unused 529 funds used to feel like a financial dead end — but not anymore. With new tax law updates, families can avoid penalties, reduce student loan burdens, and even turn leftover education savings into a powerful jump-start for retirement. These changes matter because they give you more financial flexibility, more control over your long-term planning, and more ways to make every dollar in a 529 plan work harder for your family’s future. What is a 529 plan?A 529 savings plan is a simple, tax-friendly way to save for college, kind of like a 401(k) but for education expenses. The money grows tax-free, can be used for things like tuition and room and board, and you can even switch the beneficiary if plans change. Check out our blog, How 529 Plans Can Help You Save for Your Child's College Education in 2025 for more helpful background information.What changed under SECURE Act 2.0?The SECURE Act 2.0 introduced new flexibility for 529 plans, including:Roth IRA Rollovers- Up to $35,000 (lifetime limit) of unused 529 plan funds can now be rolled into a Roth IRA for the same beneficiary.K–12 Tuition and Student Loan Repayments- You can use 529 funds to pay up to $10,000 in student loan principal or interest, per beneficiary (and per sibling, if applicable).Penalty-Free Reallocation- Families with excess funds can now redirect those dollars without triggering taxes or penalties (certain rules apply).Key Rules to Keep in Mind for Roth Rollovers:The 529 plan must have been open for at least 15 years.Annual Roth IRA contribution limits still apply.Contributions (and earnings on those contributions) made in the last 5 years are not eligible for rollover.Benefits:Relief for families with unused 529 fundsOpportunity to jump-start a child’s retirement savingsAvoids tax penalties on unused education fundsStrategic planning tool: helps optimize both education and retirement funding “Families are often surprised to learn that their 529 plan can do more than just cover college tuition. With the latest updates, it’s become a powerful tool for long-term financial flexibility, if you know how to use it.” - Kristin Kelley Can unused 529 funds be used to pay off student loans?Yes, with a caveat. While you can’t transfer funds directly to the borrower to pay off all student debt, here’s how it can still help:Use up to $10,000 in 529 funds toward a beneficiary’s student loan payments (plus $10,000 per sibling, if applicable).Freeing up 529 money for retirement means families may reallocate personal savings to focus on loan repayment.Did anything change under OBBBA?The One Big Beautiful Bill Act (OBBBA) preserved key SECURE 2.0 provisions related to 529 plans and did not reverse the new rollover or loan repayment benefits.Is This Strategy Right for You?Who may benefit most:Parents with leftover 529 fundsBeneficiaries not attending college or receiving scholarshipsEarly planners looking to jump-start retirement savings for their childrenWho should be cautiousFamilies who need immediate liquidityThose with recent 529 contributions (due to the 5-year rule)FAQs: 529 Plan FlexibilityCan I roll over 529 funds into my Roth IRA as the parent? No. The Roth rollover can only go to the beneficiary of the 529 plan (usually the child), not the original account holder.What happens if I’ve recently added money to the 529 plan? Contributions made in the last five years (and their earnings) are not eligible for Roth rollovers. Does using 529 funds for student loans impact financial aid? Possibly. It's best to coordinate distributions with a financial advisor if your family is applying for aid.Are the Roth rollover and student loan payment options permanent? As of now, yes. OBBBA preserved these SECURE 2.0 provisions, but it’s smart to stay updated in case of future tax law changes.Can I still change the beneficiary on a 529 plan? Absolutely. You can transfer the plan to another qualifying family member without penalty.The SECURE Act 2.0 gives new life to 529 plans, turning leftover education funds into a retirement asset or a partial student loan relief tool. With the right strategy, your 529 plan could serve double duty, helping you support both college and retirement goals.
