I thought the 529s were made permanently tax-free in the Pension Protection Act of 2006. Of course, I'm not a lawyer or CPA so I could be wrong, and laws can change.
I never established a 529 because I had started a Roth IRA a few years before my DD was born. I make contributions to a pension plan and a 403(b), so the Roth IRA was a way to supplement my retirement rather than serve as my primary source of income. I felt that since I could use my contributions to the Roth to fund her education without leaving myself short in retirement, it wasn’t worth it for me to divert money away from retirement savings to save for her college. Of course, I only have one child, so the contribution caps on the Roth still allow me to have plenty set aside for her college with the benefit that the earnings and any contributions left over could be used by me in retirement.
People with more than one child will likely find a Roth alone won’t allow them to save enough because of contribution restrictions. Also, Roth IRAs have income restrictions, so not everyone is eligible to start one. They may also lack some additional tax benefits 529s allow for, so Roths aren’t a good alternative to 529s for everyone.
