Sending children to college is a significant financial undertaking. The average tuition fee at public, in-state universities now tops $11,500 a year in 2025, with out-of-state undergraduates looking at over $30,500, according to data from Bankrate.
These figures typically do not include room, board, or any of the extra fees that pop up every semester. This is why college savings plans, especially 529 plans, are a popular solution for families that want to stay on top of college tuition.
These plans have seen some interesting updates in recent months, which will be discussed in this article.
A Quick Refresher: What Are College Savings Plans?
A college savings plan, such as the 529 plan, is a tax-advantaged investment account where you set money aside for educational expenses. Contributions grow tax-free, and withdrawals are also tax-free, as long as the money is used for qualified educational expenses.
As of 2024, only 35% of families use a college savings fund (such as a 529 plan) to save for college. The rest use money from other sources. With the recent updates to the 529 college savings plan, this may change.
Recent Updates to 529 Plans
529-to-Roth IRA Rollover
One of the newest updates to the 529 college savings plan is the 529-to-Roth IRA rollover, which allows beneficiaries to roll over 529 funds into a Roth IRA account. This means that if your child has unused funds from their college savings plan, up to $35,000 over a lifetime can be transferred into their Roth IRA without paying taxes or penalties.
This update is effective for distributions made on or after January 1, 2024. Here is what to know about this rollover feature:
- The 529 account must be at least 15 years old.
- The rollover only applies to contributions made more than five years prior.
- The rollover amount cannot exceed the annual Roth IRA contribution limit (in 2025, that is $7,000 for those under 50).
- The beneficiary needs to have earned income that matches or exceeds the rollover amount for that year.
With the possibility of leftover funds going towards retirement, this feature can give your child a financial head start.
Expanded Qualified Expenses
While tuition is usually the biggest expense, it is far from the only one. The good news is that college savings plans have evolved to meet more of those real-world costs. The scope of qualified expenses has expanded, and the Bright Start 529 college savings plan benefits are one example of a plan that now covers a lot more education-related costs, giving parents and students much more flexibility.
- Apprenticeships & Trade Skills: Not every student wants to take the traditional four-year college path. Now, 529 plan funds can be used for federally registered apprenticeship programs, vocational schools, trade schools, and similar institutions.
- Student Loan Repayments: The 529 college savings plans have been updated to apply to student loan repayments. Up to $10,000 per beneficiary can be used to offset a portion of student loans, which can help relieve some post-graduation financial pressure.
- K–12 Expenses: As long as the child attends an eligible educational institution, 529 funds can be used to handle tuition and fees. This was previously capped at $10,000 but will increase to $20,000 per student, starting with the 2026 tax year. Additional K–12 expenses like textbooks, computers, software, and internet access now also count as qualified expenses.
Today’s college savings plans are about supporting a complete educational journey, not just paying for tuition.
Impact on Financial Aid
When it comes to college savings plans, two things about the 529 option have often been tricky to grasp: taxes and financial aid. Recent updates have made things easier.
- Gift Tax Increase: The annual federal gift tax exclusion has increased from $18,000 to $19,000 per beneficiary. This means that you can now contribute that amount to a child’s 529 each year without triggering the need to file a gift tax return. For example, a person could contribute $19,000 to each of their three children’s accounts in 2025 without worrying about filing a gift tax return.
- Grandparent-Owned Accounts & FAFSA: Previously, distributions from a grandparent-owned 529 account were reported as untaxed income for the student, which could reduce need-based aid in the following year. Under the new FAFSA rules, those distributions no longer count as student income, removing this potential penalty.
Conclusion
Saving for a child’s future, whether their plan is the traditional four-year college route or another form of education, has become easier and more flexible. Recent changes to 529 plans, such as the ability to convert leftover funds into a retirement fund and the expansion of qualified expenses, have made them a more powerful tool. If you have been reluctant to explore college savings options before, now may be the time to reconsider, as these plans offer a practical way to prepare for the rising cost of education.
