How 529 Accounts Can Fund Your Child’s Future Without Derailing Your Own
By SFMG Wealth Advisors | Contributor
As backpacks hit the shelves and school supply lists start circulating, it is a natural moment to ask a more important question: are you on track to fund the education your child deserves? A 529 plan is one of the most powerful tools available to families for this purpose, and with some recent rule changes, it is more flexible than ever.
At SFMG Wealth Advisors, we are not just wealth advisors. We are the team that gets invited to your retirement parties, the ones you call when a big life change is on the horizon, and the familiar faces you trust to help navigate whatever comes next. Founded in 2002 and locally owned, we are a Dallas-based, fee-only Registered Investment Advisor serving high-net-worth families, business owners, executives, and private equity investors. As fiduciaries, we are required to act in our clients’ best interest, and our mission is simple: to help provide you with Confidence for Life.
That confidence extends to every chapter of life, including the school years.
What Is a 529 Plan?
A 529 plan is a specialized investment account designed for qualified educational expenses. Contributions grow tax-deferred, and withdrawals are tax-free when used for qualifying costs. Depending on your state of residence, contributions to an in-state plan may also be deductible from state income taxes, adding another layer of savings.
Qualified expenses include tuition, fees, books, and a computer. If your student is enrolled at least half-time, room and board also qualifies. In most states, 529 funds can cover up to $20,000 per year in tuition for private elementary or secondary schools, and up to $10,000 in student loan repayments (subject to a $10,000 lifetime limit per beneficiary).
Plans are run by individual states, but you are not required to use the plan offered by your home state. You are free to shop for the plan with the best investment options and lowest fees, regardless of where it is based. Keep in mind, however, that investing in an out-of-state plan may mean forgoing any state income tax deduction or credit available for your contributions to your home state’s plan. Be sure to weigh those potential state tax benefits before choosing a plan from another state.
How Much Can You Contribute?
Contributions to a 529 are considered gifts. Contributing more than the annual gift tax exclusion ($19,000 per person in 2026) may require filing a gift tax return. However, 529 accounts offer a unique “superfunding” option: you can contribute up to five years of gifts in a single lump sum ($95,000 per person, or $190,000 per couple). This front-loads the account and gives those dollars more time to grow.
What If My Child Doesn’t Need All the Funds?
This is one of the most common questions we hear, and the answer is reassuring. First, 529 beneficiaries can be changed. If one child does not use the full balance, the account can be redirected to a sibling, cousin, or other family member.
If a scholarship makes some funds unnecessary, you can withdraw that amount penalty-free. You will owe income tax on the earnings, but the 10% early withdrawal penalty is waived up to the scholarship amount.
And then there is the newest option, which has changed the calculus for many families.
The 529-to-Roth IRA Strategy
Thanks to the SECURE Act 2.0, unused 529 funds can now be rolled over into a Roth IRA for the original beneficiary, subject to several conditions. This is a meaningful development for families who worry about over-saving in a 529.
Here is how it works:
- The 529 account must have been open for at least 15 years before a rollover can occur.
- The lifetime rollover limit is $35,000 per beneficiary.
- Rollovers are subject to annual Roth IRA contribution limits ($7,500 in 2026), so this is a strategy that unfolds over several years.
- The beneficiary of the 529 must also be the owner of the Roth IRA and must have earned income at least equal to the rollover amount in the applicable year.
- Additionally, contributions (and their earnings) made to the 529 within five years preceding a rollover are not eligible to be rolled over. Only funds that have been in the account for more than five years may be rolled over.
This rule turns a potential downside of 529 accounts (the risk of overfunding) into a longer-term planning opportunity. Instead of facing a tax bill on unused earnings, your child or grandchild could enter adulthood with a Roth IRA already seeded, giving them a head start on retirement savings.
Why Now Is a Good Time to Start
Back-to-school season is a natural checkpoint for education planning. Whether your child is heading into kindergarten or finishing high school, earlier contributions have more time to compound. With college costs rising every year, the gap between what families save and what tuition actually costs continues to widen for those who wait.
If you already have a 529 in place, now is a good moment to review the investment allocation, confirm the beneficiary designations are current, and talk through whether superfunding makes sense given your broader financial picture.
If you do not yet have a plan in place, there is no better time than the present. Even modest, consistent contributions can make a meaningful difference by the time your child walks across a stage.
Our team at SFMG is here to help. Whether you are just getting started or want to revisit your current strategy, we welcome the conversation. To learn more about who we are and our services, please visit sfmg.com. We are located at 3960 Dallas Parkway, Suite 400, Plano, TX 75093.
This article was prepared by SFMG Wealth Advisors and published as part of a paid content marketing arrangement with Good Life Family Magazine. The views expressed are solely those of SFMG Wealth Advisors and do not represent the views of Good Life. This article is a marketing communication intended to inform readers about SFMG Wealth Advisors and its services. SFMG Wealth Advisors is an SEC-registered investment advisor. SEC registration does not imply a certain level of skill or training. As a wealth advisory firm, SFMG provides investment management services, which involve risk including the possible loss of principal. The information in this article is for informational purposes only and does not constitute individualized investment, tax, or legal advice. SFMG is not a CPA firm. Always consult your own tax and legal professionals regarding your specific situation. 529 plans involve investment risk, including loss of principal; account values will fluctuate based on market conditions. There is no guarantee that investment objectives will be achieved. Before investing in any 529 plan, consider your state of residence, as some states offer favorable tax treatment only to residents who invest in their home state’s plan. A copy of SFMG Wealth Advisors’ Form ADV Part 2A is available upon request or at www.sfmg.com/resources.