A 529 plan is a tax-advantaged savings vehicle designed to encourage saving for future education expenses. Named after Section 529 of the Internal Revenue Code, these plans offer significant benefits for individuals aiming to fund higher education costs.

• Tax Advantages: Contributions to a 529 plan grow tax-free, and withdrawals for qualified education expenses are also tax-free at the federal level. Additionally, many states offer tax deductions or credits for contributions to their own 529 plans.
• Flexibility: Funds can be used at most accredited colleges and universities, as well as many technical, trade, vocational, and career schools. This includes institutions both within and outside the United States. Additionally, funds can be used for K-12 education and Student Loan Repayment, with some limitations.
• Control: The account owner retains control over the funds, determining the timing and amount of distributions. This ensures that the savings are used as intended for educational purposes.

• College Savings Plans: These function similarly to investment accounts, where contributions are invested in mutual funds or similar investments. The account’s value can fluctuate based on the performance of these investments. Withdrawals can be used for a wide range of qualified higher education expenses, including tuition, fees, room, and board.
• Prepaid Tuition Plans: These allow individuals to prepay future tuition at today’s rates for certain colleges or universities, effectively locking in current prices. However, they often have residency requirements and may limit the beneficiary’s choice of institutions.

By investing in a 529 plan, you can enjoy tax-free growth on your contributions and tax-free withdrawals for qualified education expenses. Additionally, depending on the state’s tax policies, there may be state tax deductions or credits available for contributions to certain 529 plans.

When selecting a 529 plan, consider the following factors:

• Investment Options: Look for plans that offer a diverse range of investment choices to align with your risk tolerance and financial goals.
• Fees and Expenses: Lower fees can significantly impact the growth of your savings over time. It’s essential to compare the costs associated with different plans.
• State Tax Benefits: Some states offer tax incentives for contributing to their own 529 plans. However, it’s crucial to evaluate whether these benefits outweigh potential advantages of other states’ plans.

Unlike other tax-advantaged accounts, 529 plans do not have income limits for contributors. This means that individuals at any income level can open and contribute to a 529 plan. However, there are contribution limits:

• Each state sets its own contribution limit, generally ranging from $235,000 to over $500,000 per beneficiary. Contributions beyond these limits are not allowed, but investment growth can still continue.
• 2025 Annual Gift Tax Exclusion: Contributions up to $18,000 per year (or $36,000 for married couples) per beneficiary do not trigger gift tax. You can also contribute up to five years’ worth of this exclusion ($90,000 single/$180,000 married) at once without incurring gift tax.

While contributions to a 529 plan are not tax-deductible at the federal level, many states offer tax deductions or credits for contributions to their own state-sponsored plans. However, tax treatment varies by state, so it’s important to review state-specific rules.

• Tax-Free Growth: Earnings in a 529 plan grow tax-free if used for qualified expenses.
• Tax-Free Withdrawals: Withdrawals for qualified education expenses (tuition, fees, books, supplies, and room and board for students enrolled at least half-time) are tax-free at the federal level and often at the state level.
• Non-Qualified Withdrawals: If funds are withdrawn for non-educational purposes, earnings are subject to federal income tax plus a 10% penalty. The penalty does not apply if the beneficiary receives a scholarship, attends a U.S. military academy, or in cases of disability or death.

Funds in a 529 plan can be used for a variety of educational expenses, including:

• College and university costs: Tuition, fees, books, supplies, computers, internet access, and room and board (if the student is enrolled at least half-time).
• K-12 tuition: Up to $10,000 per year per beneficiary can be used for private or religious elementary and secondary school tuition.
• Apprenticeship programs: Registered apprenticeship programs with the U.S. Department of Labor can qualify for tax-free withdrawals.
• Student loan repayment: Up to $10,000 can be used to pay off student loans for the beneficiary or their siblings.