The biggest downside to 529 plans is about to go away. Now they’re a ‘no-brainer,’ expert says

To be sure, 529 college savings plans already had a lot going for them.

Now, thanks to “Secure 2.0,” a slew of measures affecting retirement savers, they’re about to be even more attractive.

Starting in 2024, savers can roll unused money from 529 plans over to Roth individual retirement accounts free of income tax or tax penalties. Among other limitations, the 529 account must have been open for 15 years and account holders can’t roll over contributions made in the last five years. Rollovers are subject to the annual Roth IRA contribution limit, and there’s a $35,000 lifetime cap on 529-to-Roth transfers.

“It becomes a no-brainer at this point,” said Marshall Nelson, wealth advisor at Crewe Advisors in Salt Lake City.

These plans have been steadily gaining steam for a number of reasons.

In some states, you can get a tax deduction or credit for contributions. Earnings grow on a tax-advantaged basis and, when you withdraw the money, it is tax-free if the funds are used for qualified education expenses such as tuition, fees, books, and room and board, or even apprenticeship programs.

A few states also offer additional benefits, such as scholarships or matching grants, to their residents if they invest in their home state’s 529 plan.

Further, you can now put some of the funds toward your student loan tab: up to $10,000 for each plan beneficiary, as well as another $10,000 for each of the beneficiary’s siblings.

And yet, total investments in 529s fell to $411 billion in 2022, down nearly 15% from $480 billion the year before, according to data from College Savings Plans Network, a network of state-administered college savings programs.

“Last year, we saw a pretty noticeable reduction in contribution behavior,” said Chris Lynch, president of tuition financing at TIAA. Regular contributions to a 529 college savings plan…