May 29, 2024

The College Savings Foundations (CSF) started celebrating 529 day (May 29th) in 2021 to raise awareness of 529 college savings plans. Their goal is to help families plan and save ahead for college.

What is a 529 plan?

In short, a 529 plan is a tax-advantaged investment account designed to encourage saving for future education costs.

Here are the features of a 529 plan:

  1. Tax-Free Growth – Earnings in a 529 plan grow federal tax-deferred, and withdrawals are tax-free when used for qualified education expenses like tuition, fees, books, and room/board.
  2. State Tax Deductions – Over 30 states offer a full or partial state tax deduction for contributions to their 529 plan.
  3. High Contribution Limits – Most plans have very high lifetime contribution limits, often over $300,000 per beneficiary.
  4. Flexible Investment Options – 529 plans offer age-based portfolios that automatically adjust to become more conservative as the beneficiary gets closer to college age.
  5. Broad Qualified Expenses – Funds can cover costs from K-12 through graduate school. This includes up to $10,000 annually for K-12 tuition, student loan repayments, and apprenticeship programs. Funds can also be used for tech or vocational education.
  6. Beneficiary Changes Allowed – The beneficiary can be changed to another qualifying family member if needed.
  7. No Income Limits – Unlike some education accounts, there are no income limits to open and contribute to a 529 plan.
  8. Tax-Free Rollovers – Up to $35,000 of leftover 529 funds can be rolled over to a Roth IRA tax-free after 15 years.

The main benefits are the tax-advantaged growth, ability to pay a wide range of qualified education costs tax-free, and flexibility in changing beneficiaries and investment options.

*The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that a college-funding goal will be met. To be federally tax free, earnings must be used to pay for qualified higher education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax atthe recipient’s marginal rate and subject to a 10 percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.