I Have a Sizable Roth IRA. Do I Still Need a 529 for My Grandkids' College?

Before you touch your retirement fund, consider how taxes, penalties, and financial aid rules change the math. Our Wealth Wise columnist breaks down the choices.

By Maurie Backman Contributions by Ellen B. Kennedy

Published 19 July 2026 In Features

A cute little girl smiles while wearing red cap and gown and standing in a field. — (Image credit: Getty Images)

Wealth Wise is Kiplinger's advice column on navigating retirement-related dilemmas. Got a question? See below for how to send it to us.

Dear Wealth Wise: If I have a fully funded Roth account, is there any advantage to adding a college 529 plan for my grandkids' college? I believe paying for college from a Roth account is just as good or better than paying for college from a 529 plan. A 529 plan is essentially the same as a Roth, but with different rules for how the tax-free money can be used. Is this correct? — Confused Grandparent

Dear Confused: The average cost of college today is $38,270 per year, including books, supplies, and living expenses, according to the Education Data Initiative. If you're retired and are in a position to help your grandchildren cover the cost of college, it's natural to want to pitch in. But it's important to do so as efficiently as possible.

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Here, a grandparent with a robust Roth IRA wants to know if there's any point to funding a 529 plan for their grandkids. As they correctly point out, 529 plans and Roth IRAs have similarities. Both accounts are funded with after-tax dollars, but gains and withdrawals are tax-free provided plan rules are followed.

In the case of a Roth IRA, gains and withdrawals are fully tax-free, provided you're at least 59½ and your account meets the five-year rule. For a 529 plan, gains and withdrawals are tax-free provided your money is being used to pay for qualified education expenses.

But that doesn't mean you should just flip a coin to choose the right home for your grandkids' college savings. It's important to understand the nuances of funding an education through a Roth IRA versus a 529 plan.

"For affluent families, I don't view a Roth IRA and a 529 plan as interchangeable tools." — Julian B. Morris

Roth IRAs and 529s are different beasts

While you can technically choose either a Roth IRA or 529 plan to save for a grandchild's college, Julian B. Morris, founder and principal at Concierge Wealth Management, says, "For affluent families, I don't view a Roth IRA and a 529 plan as interchangeable tools."

Morris calls a Roth IRA "one of the most valuable pieces of financial real estate that a high-income family can own." And he points out that Roth assets are usually tricky for higher earners to accumulate. That's why he generally views Roth assets as retirement assets first and education assets last.

"Every dollar withdrawn from a Roth IRA for college is a dollar that loses the opportunity for decades of future tax-free compounding for retirement," he explains.

For example, imagine you're 65 and tap your Roth IRA to help cover your grandchild's tuition. If you live to age 90, you could miss out on a huge amount of tax-free gains.

On the other hand, as Morris explains, "529 plans are specifically designed for education, funding, and offer several advantages. Grandparents can move assets out of their taxable estate while retaining control over the asset, and a large contribution can be frontloaded to maximize long-term compounding for future generations."

The 529 "superfunding" rule Morris alludes to allows an individual grandparent to bundle five years of gifts into a single lump sum of up to $95,000 (or $190,000 for a married couple). This step instantly removes that chunk from their taxable estate, allowing it to compound tax-free for future generations.

The 529 financial aid trap (mostly) no longer applies

It used to be that grandparent-owned 529 plans had to be disclosed as assets on the FAFSA. An update to that rule makes a 529 plan a far more attractive option.

While parent-owned 529 plans can reduce aid by up to 5.64% of the account’s value and student-owned plans can reduce aid eligibility by 20% of the account’s value, a grandparent- or relative-owned 529 plan should not affect need-based federal financial aid at all. This strategy is known as the grandparent 529 loophole.

That said, roughly 200 private colleges (mostly highly-selective colleges) use the CSS Profile, an additional financial aid form. CSS Profile requires students to disclose grandparent-owned 529s.

Another thing to keep in mind about 529 plans is that several states offer tax incentives for contributions. And those incentives are often available to anyone who funds a 529, even if that person is a grandparent. In many cases, though, you can only reap those tax benefits if you contribute to your home state's plan.

You can roll unused 529 funds into a Roth IRA

Morris also points out that recent rule changes have made 529 plans even more attractive.

"Unused 529 assets may be eligible for rollover into a Roth IRA for the beneficiaries. The ability to convert unused education dollars into future retirement dollars has significantly reduced the fear of overfunding a 529 plan and has greatly increased its use for life after college."

As Jaine Coann Barton, Wealth Management Advisor at TIAA, explains, "If you end up with more money in the 529 than your grandchild needs, current rules allow you to roll over up to $35,000 of those excess funds into a Roth IRA in your grandchild’s name."

Just keep in mind the rules for rolling excess 529 funds into a Roth IRA. For example, the account must have been open for at least 15 years before the transfer. Moreover, your grandchild must have earned income for the year that is at least equal to the amount of the transfer.

For these reasons, Morris typically recommends using a Roth IRA as a retirement nest egg and using a 529 plan if the intent is to fund an education.

Separating personal savings from college savings is often best

Ultimately, your best move will be to open a 529 plan for your grandchild. You never know when you might face expensive home repairs, need a new vehicle, or require long-term care. Allocating funds to a 529 plan allows for that separation. You can help fund your grandkids' education without having to worry about dipping into reserves you might eventually need yourself.

And along these lines, if you stick with a Roth IRA, you may end up contributing less toward your grandchildren's education than what you can actually afford if you're worried there won't be enough money left for your own needs.

Does the flexibility of a Roth IRA outweigh the benefits of a 529?

Despite positive changes to 529 plan rules, one expert offered a contrarian view: A Roth IRA may ultimately be your most flexible option for funding a grandchild's education.

As Coann Barton points out, "It can be difficult to predict what your grandchildren's educational path will look like. Will they attend a two-year community college or a four-year private university? Will advances in artificial intelligence reshape the cost of or need for a traditional college education? A Roth IRA allows you to adapt to whatever the future holds without being locked into a specific purpose."

You can't predict your grandchild's college plans or the future of college altogether, but the addition of an IRA rollover of up to $35,000 does offset some of Barton's concerns.

A word from Wealth Wise — 529 plans are almost always best

Overall, a 529 plan beats a Roth IRA by most criteria. Remember that it can help your grandchild while also aiding your tax planning. With a 529 plan, you can shield large sums all at once through superfunding, building a hefty college fund and potentially earning you a state tax credit or deduction.

Roth IRAs, on the other hand, allow only small annual contributions ($7,500 to $8,600 for 2026). Those contributions are probably better reserved for retirement. And since you are already retired, you can't make new contributions to a Roth IRA anyway.

Ultimately, you're doing a wonderful thing — helping grandchildren you care about get a degree while minimizing their student debt burden.

Disclaimer

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our writers and experts, in this advice column, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial adviser regarding any questions you may have in relation to the matters discussed in this article.