What it is
A 529 plan is a tax-advantaged account for education savings. You invest after-tax money, it grows tax-free, and withdrawals for qualified education expenses are tax-free. Nearly every state sponsors one (often with a state tax deduction for residents), and you can generally open any state's plan regardless of where you live or study.
How it works
- College savings plansThe common type — you invest in portfolios (often age-based) that you use for qualified expenses later
- Prepaid tuition plansLet you lock in tuition at today's rates at eligible (often in-state public) schools
- Anyone can contributeParents, grandparents, and others can add to a child's 529
- The owner keeps controlYou (not the child) control the account and can change the beneficiary
How much & what it covers
529 funds can pay for tuition, fees, books, supplies, and room and board at eligible colleges and career schools — plus, within limits, K-12 tuition (up to a set annual amount), registered apprenticeships, and student-loan repayment (up to a lifetime cap). Recent law also allows a 529-to-Roth IRA rollover of leftover funds (subject to conditions like account age and lifetime limits).
Terms to know
- Qualified expensesWhat you can spend 529 money on tax-free
- BeneficiaryThe student the account is for (changeable to another family member)
- Age-based portfolioAn investment mix that gets more conservative as college nears
- 529-to-Roth rolloverMoving unused 529 funds into the beneficiary's Roth IRA, within limits
Tips to maximize it
- Start earlyTime and tax-free growth are the biggest advantages
- Check your state's tax breakMany states offer a deduction or credit for using their plan
- Automate contributionsEven small monthly amounts add up
- Don't over-fund blindlyLeftover funds can now roll to a Roth IRA within limits, or change beneficiary
- Coordinate with financial aidA parent-owned 529 has a relatively small effect on aid eligibility
Frequently asked questions
- Do I have to use my own state's plan?No — you can open almost any state's plan; use your own if it offers a tax break.
- What can 529 money pay for?College costs, plus limited K-12 tuition, apprenticeships, and student-loan repayment.
- What if my child doesn't use it all?Change the beneficiary, or roll leftover funds to a Roth IRA within the rules.
- Does a 529 hurt financial aid?A parent-owned 529 has a small impact on need-based aid.
- Is growth really tax-free?Yes, for qualified education expenses.
Key facts
- WhatTax-advantaged education-savings account
- GrowthTax-free for qualified expenses
- TypesSavings & prepaid tuition
- CoversCollege + limited K-12, apprenticeships & loans
- New529-to-Roth IRA rollover (with limits)
Where to learn more
Learn more and compare plans: