529 Plan vs. Roth IRA: Which Is Best For College Savings?

Thanks to its flexibility and investment choices, a Roth IRA account is a great college savings tool; but in some situations, a 529 savings plan is the better choice.
Andrea Coombes
By Andrea Coombes 
Edited by Robert Beaupre

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

You already know college is expensive, so it’s a good thing there’s not one but two tax-smart ways to save for those costs: Roth IRAs and 529 plans. So which is better for you?

To start, it’s worth noting that the rules for Roth IRAs and 529s are similar. (For this piece, we’re focusing on 529 savings plans, not prepaid tuition plans.) With either a Roth or a 529, you put money in after taxes, and your savings grow tax-free. As long as you follow the rules, you won't owe taxes on the investment earnings in either account.

For many savers, the Roth IRA is appealing because of its flexibility — these are retirement accounts, but you can always take out your contributions without penalty — and its wide array of low-cost investment choices.

Let’s break down the general virtues of the Roth IRA, and the situations in which a 529 plan can beat it.

Roths are for retirement — but they’re flexible

Roth IRAs were created to encourage people to save for retirement. But, unlike with other retirement accounts, you can always withdraw the Roth IRA money you have contributed, any time, free of taxes and penalties.

Note the emphasis on “contributed” there. If you withdraw the investment earnings in your Roth account before age 59½, you’ll likely owe income taxes and a 10% penalty on the money you take out of the account.

There are some exceptions: If you take out Roth money to pay for qualified college costs, then you won’t owe the 10% penalty. You will, however, owe taxes on any investment earnings you withdraw (unless you’re over age 59½ and have owned the account for five years or more).

You open a Roth IRA account at a broker, ideally a low-cost broker. Here’s more on how and where to open an IRA.

» View NerdWallet's picks for best brokers for IRA accounts

529s are for college (and K-12, too)

With a 529 plan, as long as the money you withdraw goes to qualified education costs, you won’t owe taxes or penalties. And the “qualified” costs include up to $10,000 for elementary and high school tuition.

But if the money goes to some other purpose, you may owe taxes and a 10% penalty on investment earnings. That means that, unlike with a Roth, you can’t simply bank those earnings for retirement if your son or daughter decides to forgo college.

Still, there are some situations in which the scales may tip in favor of a 529:

If your state offers a 529 tax break and has a good 529 plan

We’ve listed which states offer 529 tax breaks. Generally, you'll want to take advantage of that tax break by investing in the 529 plan in your state. However, some 529 plans have high enough fees, or a thin investment selection, which could warrant selecting another state's option.

If you’re going to need financial aid

Roth withdrawals generally count as income in the Free Application for Federal Student Aid, or FAFSA, calculation, and having more income can put a bigger dent in how much aid your family gets. (Note that Roth IRA assets are ignored by FAFSA as long as the money is sitting in the account. It’s only the withdrawals that can cause financial aid pain.)

Meanwhile, 529s are sort of the opposite: While distributions from a parent-owned 529 won’t hurt financial aid, parent-owned 529 assets can count against you on the FAFSA, though the percentage hit for assets is much less than for income. (The rules are different for 529s owned by relatives who aren’t the beneficiary’s parents.) This is a pretty big win in favor of 529 plans. Note that the FAFSA now requires your income information from two years earlier.

If you’re above the Roth IRA limits

At higher incomes, you may encounter Roth IRA contribution limits. The 529 plan doesn't have income limitations that guide who can contribute.

If you want to stash a lot of money away every year

Roth IRAs have annual contribution limits of$6,500 in 2023 ($7,500 if age 50 and older), which may not be enough depending on your college savings goals. There are no annual limits for 529 contributions. (Though if you’re giving more than $15,000 to someone in a year, read up on the gift tax.)




per trade



management fee



no account fees to open a Fidelity retail IRA

Account minimum 


Account minimum 


Account minimum 



Up to $600

when you invest in a new Merrill Edge® Self-Directed account.



career counseling plus loan discounts with qualifying deposit


Get $100

when you open a new Fidelity retail IRA with $50. A 200% match. Use code FIDELITY100. Limited time offer. Terms apply.


Paid non-client promotion

Get more smart money moves – straight to your inbox
Sign up and we’ll send you Nerdy articles about the money topics that matter most to you along with other ways to help you get more from your money.