College Savings

Three things to know about a 529 plan as the school year begins

Three things to know about a 529 plan as the school year begins
Key takeaways
529 plans allow tax-free growth
Within a 529 account, your contributions grow free of federal taxes.
Anyone can open and potentially benefit from a 529 account
Family and friends can join in helping a student meet their education savings goals.
More than just college
Outside of college tuition, there is a large variety of qualified expenses you can use your 529 assets for.

With back-to-school season around the corner for many, students of all ages are preparing for the upcoming school year. Whether this includes buying school supplies, paying tuition, or getting a new laptop, financial decisions are certain to be a part of these preparations. A 529 savings plan can help alleviate some of the pressures of these financial decisions by allowing for tax-advantaged savings that can help with future education costs. We’ve compiled three key points about 529 plans to know going into the school year.

1. 529 plans are tax-advantaged

One of the largest features of a 529 plan is that earnings made on a 529 account are exempt from federal taxes — this means you can grow your contributions completely free of federal taxes while in the account.

Additionally, withdrawals made from 529 accounts are tax-free as long as they are used for qualified education expenses; withdrawals made for non-qualified expenses will incur a 10% penalty on the earnings portion of the withdrawal.1

In terms of 529 state tax benefits, each state operates differently, so you may need to explore the various 529 plans offered by different states to find the best fit for you. (Check out our interactive map of 529 tax benefits by state.)

2. Anyone can be the account owner or beneficiary of a 529 plan

Each 529 account has one account owner and one beneficiary. The account owner can control the contribution level, make investment decisions, and make withdrawals to pay for the beneficiary’s qualified expenses. Account owners also have the power to change the beneficiary once per year for any reason. For example, let’s say that the original beneficiary of the 529 account chooses to not go to college; the account owner can then transfer the money to a newly-changed beneficiary to use for their educational expenses instead.

Although account owners are commonly the beneficiary’s parents or grandparents, anyone can be the account owner of a 529 plan if they are 18 years old or above. This includes not only parents and grandparents, but other relatives, friends, and just about anyone else who wants to help out as well. You could even name yourself as both the account owner and the beneficiary, so long as you are at least 18 years old

3. 529 plan distributions can be used for more than just college

Even though 529 plans are commonly utilized (and a great tool) for the purpose of saving for college, they are not limited to just that. There is still a large variety of items outside of college tuition that you can use your 529 funds for. Qualified expenses include:

  • Tuition and fees
  • Room and board
  • K-12 tuition (up to $10,000)
  • School supplies
  • Tuition at vocational schools, technical colleges, and qualifying trade schools
  • Study abroad programs
  • Student loan payments

Study up on 529s

For more information about 529s and the importance of starting an education savings plan, visit our ABCs of Education page. To see the impact of how your savings can help your child’s future, check out our College Savings Calculator.


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    Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.