Updated: Oct 24
In the past 529s were thought of as only a college savings tool. That is still their primary use, but in recent years these accounts have been granted more flexibility making them more than just college savings vehicles.
I’ve compiled a list of 529 ‘highlights’ (this is not meant to be an exhaustive list of all of their features or their rules):
Contributions to a 529 can be invested in stocks, bonds, mutual funds, etc. for growth. If used for qualified college expenses withdrawals are tax-free. (You may get a state-tax deduction on contributions too, depending on your state.)
You can withdraw $10,000 tax-free each year for K-12 education expenses.
Make sure you research your specific state tax rules on K-12 withdrawals because they vary by state.
You can change the beneficiary at any time.
Say your first child doesn’t go to college, you can change the beneficiary to another family member. More about the rules on changing the beneficiary: https://www.savingforcollege.com/article/who-is-a-member-of-the-family-of-a-529-plan-beneficiary
Up to $35,000 (lifetime limit) can be rolled over into a Roth IRA for the beneficiary.
If the whole account isn’t depleted with education expenses you can give them a headstart on their own retirement savings. https://www.forbes.com/sites/kellyphillipserb/2023/02/15/you-can-roll-your-529-plan-to-a-roth-ira-beginning-in-2024/?sh=5f862e5d5563
If the beneficiary gets a scholarship you can withdraw that amount of money from the 529 with no penalty. You still have to pay tax on the growth, but no penalty (so it’s similar to an IRA in this circumstance).
$10,000 can be used to pay off qualified education loans.
Again, this isn’t a comprehensive list and you should be aware of the rules before taking any action. But if you’ve written off 529s in the past as being too restrictive, maybe it's time to revisit them!