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529 vs. Roth IRA for college savings: Learn what's best

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When it comes to saving for your child's college expenses, there's a good chance a 529 plan is the first tool you'll consider. The ability to pull out money tax-free for tuition and other costs makes these accounts a popular option.

However, college savings plans aren't the only way to save for higher education while catching a break from the IRS. Depending on your income, you also may be able to take money from a Roth IRA for qualified higher education expenses—without inflating your tax bill.

Which comes out on top in the 529 vs. Roth IRA matchup? Let's take a closer look at these two accounts and their key differences.

What is a 529 plan?

The 529 education savings plan is the go-to choice for many families with young children—and for good reason. These state-run plans allow anyone to contribute after-tax dollars to an account for a student's use. The savings grow without needing to pay taxes on the earnings, and money can be withdrawn tax-free when needed for qualified expenses such as tuition, fees, housing and more.

Aside from college costs, 529 plans also allow up to $10,000 a year to help cover K–12 tuition expenses. And any 529 money that isn't used to cover educational expenses can be transferred to an eligible family member of the beneficiary or—thanks to the SECURE Act 2.0—contributed into a Roth IRA for the beneficiary's future retirement use.

What is a Roth IRA?

Roth IRAs are primarily designed to save for retirement rather than college costs, though they can be used that way. As with 529 plans, you contribute after-tax dollars to your Roth IRA account, your money grows tax-free, and you can take the money out for specific uses and at certain times without paying additional taxes, if criteria are met.

Typically, you need to wait until you reach age 59½ and have owned the account for at least five years before you can pull out earnings without incurring taxes or penalties. However, Roth IRAs have an exception for education that allows contributions to come out first with no tax or penalty. If you need to access earnings and it hasn't been five years and you're under age 59½, the earnings will be taxable. But it's still considered a penalty-free withdrawal when money is used for higher education.


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What are the key 529 vs. Roth IRA differences?

Using a Roth IRA for college savings can be a clever way to create an all-in-one account that both helps you prepare for retirement and fund a student's education. In a head-to-head comparison, however, 529 plans tend to be the better option for your main savings vehicle, with a Roth IRA being a smart supplemental or alternative choice.

Here are the top differences that you'll want to consider:

Contribution limits are significantly higher with 529 plans

The annual limit on contributions to a 529 plan is very high. Each state sets an aggregate limit—the total amount you can save—on its 529 plans, but these caps are typically around $300,000-500,000, which often is enough to cover the total cost of necessary training or a degree at many institutions.

However, gift tax return may come into play for anyone who makes large contributions to a 529 plan. Couples filing joint tax returns can give up to $34,000 a year, and single filers can give up to $17,000 per year, before needing to file a gift tax return. However, 529 plans can receive up to five years of gifts in a lump sum. That would make the limits $85,000 to single filers or $170,000 for joint filers.

By comparison, Roth IRAs have a low per-year contribution limit. Unless you start saving far ahead of time, you may not be able to store up enough in a Roth IRA to completely pay for a four-year degree.

  • In 2023, you can contribute up to $6,500 a year if you're younger than 50, or up to $7,500 if you're 50 or older
  • In 2024, you can contribute up to $7,000 a year if you're younger than 50, or up to $8,000 if you're 50 or older.

Some families don't qualify to contribute to Roth IRAs

529 plans are not subject to any income eligibility.

However, Roth IRAs have income limits to participate.

  • If you make between the maximum modified adjusted gross income (MAGI) listed, you can contribute but it will be a reduced amount.
  • If you make equal to or more than the maximum limit listed, you can't contribute anything to a Roth IRA. If this applies to you, see these alternatives.
Filing status
2023 maximum modified adjusted gross income (MAGI) to contribute to a Roth IRA
2024 maximum modified adjusted gross income (MAGI) to contribute to a Roth IRA
Single or head of household
Married filing jointly
Married filing separately

Roth IRAs have a wider variety of investment options

With a 529 plan, the account owner can choose from a menu of investment options for growing earnings—typically a mix of mutual funds or target-date funds. Usually the investment option is a designated portfolio based on age or risk tolerance. These choices can be dependable as far as your rate of return, but they're also relatively hands-off for the investor.

If you're looking for more involvement with your investment, Roth IRAs tend to offer options beyond funds, such as individual stocks, bonds and real estate investment trusts (REITs).

Educational use withdrawals are more broadly defined with a 529

With a 529 plan, any amount you withdraw—whether it's your own contributions or investment earnings—is tax-free as long as it's used for post-secondary education expenses at any institution recognized by the U.S. Department of Education, whether it's vocational or collegiate. Up to $10,000 of the money even can be used for K–12 tuition expense every year.

With a Roth IRA your contributions come out first without tax or penalty and can be used for any reason, including for education expenses.*

State tax incentives may give 529 savers a boost

Both Roth IRAs and 529 plans have tax benefits at the federal level. But the contributions you make to a Roth IRA won't reduce your state tax liability.

With 529 plans, however, most states offer tax deductions or credits for residents who put money into them. In some cases, these benefits are limited to contributions you make toward the state's own 529 offering, although many states offer a state tax deduction regardless of which state 529 plan was used.

Roth IRAs & 529 plans affect the FAFSA differently

Filling out a Free Application for Federal Student Aid (FAFSA) every year determines your student's eligibility for scholarships, grants and federal loans. The more income and assets you report on the FAFSA, the smaller the financial aid package typically will be.

A 529 plan owned by a dependent student or a parent is considered an asset, which can potentially reduce aid eligibility. However, the first $10,000 of 529 plan assets are exempt from those calculations, and only 5.64% of the amount over that counts toward your Student Aid Index and has the potential to decrease financial aid eligibility.

Roth IRA balances don't count toward your family's assets for the FAFSA. But it's important to realize that any amount you withdraw from a Roth IRA for college expenses will later qualify as income, and that may decrease financial aid eligibility. The FAFSA is based on your tax filings from two years ago, so waiting until the later college years to tap Roth IRA funds may help you reduce that impact.

529 plans vs. Roth IRAs for college savings at a glance

529 plan
Roth IRA

Investment options

Limited number of mutual funds and target-date funds selected by the plan

Expanded investment options, including individual stocks and bonds as well as REITs

Tax-free growth



Tax-free withdrawals

Yes, when used for qualified education expenses

For contributions, yes, at any time; for earnings, must meet requirements*

Contribution limit

Aggregate (lifetime total) limits vary by state; may have gift tax considerations

For 2023, $6,500 a year for people younger than 50; $7,500 if you're 50 and older

For 2024, $7,000 a year for people younger than 50; $8,000 if you're 50 and older


Any U.S. citizen

You or your spouse must have earned income and meet modified adjusted gross income (MAGI) requirements

State incentives

Most states with an income tax offer a tax deduction or credit for contributions


Impact on financial aid

5.64% of the account balance in excess of $10,000 counts toward the student aid index calculation

Account balance does not count as an asset, but withdrawals are classified as non-taxable income or taxable income on FAFSA depending on if the funds withdrawn are contributions or earnings. This may reduce financial aid on later FAFSA applications

Is a 529 plan or Roth IRA better for college savings?

While Roth IRAs offer more investment options, they also have a few more strings attached than 529s. State-administered college savings plans are available to all people regardless of income levels, have much higher contribution limits and can be used for expenses beyond higher education. This makes them a sound choice, but Roth IRAs shouldn't be discounted. Roth IRAs have more investment choices and won't count toward your assets under the FAFSA—plus any unused money still can be used for your own retirement.

Every family and student preparing for post-high school education expenses has different needs. A Thrivent financial advisor can take a look at your situation and recommend the savings avenues that make the most sense for you.

*Distributions of earnings are tax free as long as your Roth IRA is at least five years old and one of the following requirements is met: (1) you are at least age 59½; (2) you are disabled; (3) you are purchasing your first home ($10,000 lifetime maximum); or (4) the money is being paid to a beneficiary.

Offered through a brokerage arrangement with Thrivent Investment Management Inc. 529 college savings plans are not guaranteed or insured by the FDIC and may lose value. Consider the investment objectives, risks, charges, and expenses associated before investing. Read the issuers official statement carefully for additional information before investing. Investigate possible state tax benefits that may be available based on the state sponsor of the plan, the residency of the account owner, and the account beneficiary. Consult with a tax professional to analyze all tax implications prior to investing.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.