Back-to-school season is here — and while the kids are busy with backpacks and pencils, it’s a great time to think about something that can make a big difference in their future: saving for higher education.

Whether you’re a parent or a grandparent, you’ve probably thought about how you might help cover college costs. With tuition continuing to rise, having a plan in place can make a world of difference — for you and for the student.

Two popular savings tools often come up in these conversations: the 529 plan and the Roth IRA. Both offer tax advantages, but they work in very different ways. And recent changes under SECURE 2.0 have opened new possibilities for combining the benefits of both.

The 529 Plan: Pros and Cons

A 529 plan is a long-standing favorite for people who want to set aside money specifically for education.

Pros:

• Withdrawals for qualified education expenses are tax-free.
• Funds can be used for college, as well as private K–12 tuition.
• No income restrictions on who can contribute.
• Higher contribution limits than a Roth IRA.
• Under SECURE 2.0, you can roll up to $35,000 in unused 529 funds into a Roth IRA for the beneficiary (with restrictions).

Cons:

• Using the money for non-qualified expenses may trigger income tax and a 10% penalty on the earnings.
• The account balance is typically counted as an asset on the FAFSA, which can impact financial aid eligibility.

The Roth IRA: Pros and Cons

Many people think of the Roth IRA only as a retirement account, but it can also be used for education.

Pros:

• Flexible — use the money for school or keep it for retirement.
• Not counted as an asset on the FAFSA, which may help with financial aid.
• Contributions can be withdrawn at any time, tax- and penalty-free.
• If you’re 59½ or older and meet the five-year rule, all withdrawals — contributions and earnings — are tax- and penalty-free for any reason.

Cons:

• Annual contribution limits apply.
• You must have earned income to contribute.
• Using Roth funds for education could mean less for retirement.
• Certain withdrawals of earnings before 59½ could be taxable and subject to penalties.

Which Is Better for College Savings?

It really depends on your goals, your timeline, and your overall financial picture. A 529 plan is often the go-to for dedicated education savings, while a Roth IRA is appealing if you want more flexibility or if you’re unsure whether your child or grandchild will use the funds for school.

And remember — it’s not always about choosing just one. With the right plan, you might be able to use both to your advantage.

Free Guide: Roth IRA vs. 529 Plan

We’ve put together this post, and we’re also sharing a free guide from our friends at Ed Slott & Company:
“Planning to Save for Higher Education: Roth IRA vs. 529 Plan.”

[Click here to download your copy]

Plan Confidently — and Fearlessly

At Richmond Brothers, we help clients plan for education expenses as part of their bigger financial picture. You can call us at 517-435-4040 to schedule a no-obligation visit.

And if you know a friend or family member who’s also thinking about ways to help with education costs, feel free to pass this along — they might find the information useful.

Let’s make this the year you take steps that help your family’s dreams take flight — from higher education to a fearless retirement.