What is a 529 Plan?
A 529 Plan is a tax-advantaged savings account designed for education expenses. Named after Section 529 of the IRS code, these plans offer federal tax-free growth and often state tax deductions.
The funds can be used for tuition, room and board, books, and other qualified education expenses at most colleges, universities, and even K-12 schools.
2026 College Cost Estimates
| College Type | Annual Cost | 4-Year Total |
|---|---|---|
| Public (In-State) | $28,000 | $112,000 |
| Public (Out-of-State) | $48,000 | $192,000 |
| Private University | $62,000 | $248,000 |
| Community College | $14,000 | $56,000 |
Costs Rise 5% Annually
529 Tax Benefits
- Federal tax-free growth (no capital gains tax)
- Tax-free withdrawals for qualified education expenses
- State tax deductions in 30+ states
- No income limits for contributors
- High contribution limits ($300K-500K+ depending on state)
State Tax Deduction
Superfunding: 5-Year Gift Election
You can contribute up to 5 years of the annual gift exclusion at once (5 × $19,000 = $95,000 in 2026) without gift tax, using the 5-year election.
This is powerful for grandparents or those who want to immediately reduce their taxable estate while maximizing 529 growth time.
Don't Gift More During 5 Years
What Can 529 Funds Pay For?
- Tuition at eligible colleges and universities
- Room and board (on or off campus)
- Books, supplies, and required equipment
- Computers and internet access
- K-12 tuition (up to $10,000/year)
- Student loan repayment (up to $10,000 lifetime)
- Apprenticeship program costs
What if My Child Doesn't Go to College?
529 plans are flexible! Options include:
- Change beneficiary to another family member
- Roll over to a Roth IRA (up to $35,000, new rule!)
- Use for K-12 private school tuition
- Keep for graduate school later
- Withdraw with 10% penalty + taxes (still may be worthwhile)
Roth IRA Rollover
Choosing a 529 Plan
You can choose any state's plan regardless of where you live. Consider:
- Your state's tax deduction (if any)
- Investment options and fees
- Historical performance
- Flexibility and ease of use
Top-Rated Plans
Frequently Asked Questions
Q: Who owns the 529 account?
A: You (the account owner) control the account, not the beneficiary. You decide when and how funds are used.
Q: Does a 529 affect financial aid?
A: Parent-owned 529s are counted as parent assets (about 5.6% expected family contribution). This is favorable compared to student-owned assets.
Q: Can I change the beneficiary?
A: Yes, you can change the beneficiary to another qualifying family member (sibling, parent, cousin, yourself) at any time.
Q: What's the penalty for non-qualified withdrawals?
A: Earnings (not contributions) are subject to income tax plus a 10% penalty. Contributions can be withdrawn penalty-free.
Q: Can grandparents contribute?
A: Yes! Anyone can contribute. Grandparent-owned 529s no longer hurt financial aid (as of 2024 FAFSA changes).
Q: What if my child gets a scholarship?
A: You can withdraw up to the scholarship amount penalty-free (still pay tax on earnings). Or save it for grad school!
college Savings Timeline
- Open a 529 as soon as possible (even before birth!)
- Start with what you can afford — even $50/month helps
- Automate monthly contributions
- Consider superfunding if you have a lump sum
- Shift to conservative investments as college approaches
- Apply for financial aid regardless of savings
This calculator provides estimates based on assumed returns and projected college costs. Actual costs and investment returns will vary. 529 rules vary by state. Consult a financial advisor for personalized guidance.