College is expensive, really expensive. For the 2024–2025 school year, in-state students at public colleges faced an average total cost of about $29,900, and private colleges were even steeper, averaging around $63,000. With costs like that, it’s easy to feel overwhelmed. That’s why starting early with a 529 college savings plan can make a big difference, giving you a smart, manageable way to save for the future without the stress.
What is a 529 college savings plan?
A 529 college savings plan is a tax-advantaged account designed to help families save for education expenses. Traditionally, it covered tuition, fees, books, supplies, and approved equipment for accredited colleges and universities, as well as room and board for students attending at least part-time. Withdrawals for these qualified purposes are tax-free at the federal level (no capital gains, ordinary income, or Medicare surtax).
Under the One Big Beautiful Bill Act that was signed into law in July 2025, 529 funds can also be used for:
- Credentialing and vocational programs, such as welding, HVAC, or cosmetology
- Professional licensing courses and exam prep (law, accounting, finance, and more)
- Continuing education to maintain professional certifications
- K–12 expenses beyond tuition, including tutoring, test prep, educational therapy, and dual-enrollment courses
Typically, a parent or grandparent opens the account and names a child or loved one as the beneficiary. Each plan is sponsored by a state and often managed with the help of a financial services company—but you don’t need to live in a particular state to invest in its plan.
529 plans also give you control over the money, letting you change beneficiaries or redirect unused funds if your child doesn’t use all of it, making them flexible tools for educational planning.
The advantages of a 529 college savings account
Understanding the ins and outs of a 529 college savings plan may help you unlock one of the biggest bangs for your college-savings buck. Their benefits include:
- Contributions grow tax-deferred, and withdrawals for qualified expenses are free from federal tax
- Many states also offer tax deductions or credits for contributions
- Assets in a 529 plan are considered parental assets, which are assessed at a lower rate (up to 5.6%) in federal financial aid calculations
- The account owner maintains control, allowing for flexibility in how and when the funds are used
- Funds can be used for a variety of qualified education expenses, including tuition, fees, books, supplies, and room and board at accredited institutions
With these benefits in mind, here’s your ABC of 529 plan benefits and details:
A. Alleviate the impact on financial aid
Many families worry that saving for college will hurt their chances of receiving financial aid. But, because 529 college savings plan assets are considered parental assets, they are factored into federal financial aid formulas at a maximum rate of about 5.64% of their value when calculating the Expected Family Contribution (EFC). That’s much lower than the 20% rate applied to student-owned assets, such as UGMA/UTMA custodial accounts. In other words, every dollar you save in a parent-owned 529 plan has a relatively small impact on aid eligibility.
A key point to remember: If a grandparent or someone other than the parent owns the 529, distributions are counted as student income on the Free Application for Federal Student Aid (FAFSA), which can significantly reduce need-based aid for that year. A common strategy is to wait to use grandparent-owned 529 funds until the student’s final year of college, after the last FAFSA has been filed.
B. Be more flexible
In many ways, a 529 college savings plan has fewer restrictions than other college savings plans:
- No income or age limits: Anyone can open one, no matter their income or age
- High contribution limits: Depending on the state, accounts can accept between $235,000 and $550,000 per beneficiary
- Use for K–12: Up to $10,000 per year can be used for private school tuition, in addition to college costs
You may also be interested in: Securing Your Child’s Future: Navigating the New 529-to-Roth IRA Transfer Rule
Is there an age limit for 529 plans?
No, there are no age limits on opening, contributing to, or using a 529 plan. Funds in a 529 account can remain invested indefinitely and be used for qualified education expenses for beneficiaries of any age, from undergraduate to graduate school, and even for K-12 tuition.
C. Control the money and choose from many investment options
Unlike a custodial account that eventually transfers ownership to the child, the account owner of a 529 college savings plan (not the child) calls the shots on how and when to spend the money. Not only does this oversight keep the child from spending the money on something other than college, but it also allows the account owner to transfer the money to another beneficiary (e.g., a family member of the original beneficiary) for any reason.
For example, say the original child for whom the account was set up chooses not to go to college—or doesn’t use all the money in the account. The account owner can transfer the unused money to another named beneficiary.
If your child receives a scholarship, you have the ability to withdraw 529 plan funds up to the amount of the scholarship without paying the 10% penalty (you would still pay tax on the earnings from investments in this case).
Most plans offer a range of investment options:
- Age-based portfolios that automatically become more conservative as college approaches
- Static portfolios with conservative, moderate, or aggressive risk levels
- Custom portfolios where you pick and choose funds
Typically, plans allow you to change your investment options twice each calendar year or if you change beneficiaries.
A word of caution: If you choose an approach that’s too aggressive, you could lose money before you need it. Too conservative, and your savings might not keep up with rising college costs.
Potential tax benefits of a 529 plan
One of the biggest perks of a 529 plan is the tax advantage. Contributions grow tax-deferred, and withdrawals used for qualified education expenses (including tuition, books, fees, and now expanded options like vocational programs and K–12 tutoring) are not taxed at the federal level. Depending on your state, you might also get a state tax deduction or credit when you contribute, which is an extra bonus.
529 plans also offer some estate planning benefits. Contributions are considered completed gifts for tax purposes, meaning they are removed from your taxable estate, but you still control how the money is used.
Here’s a helpful strategy: Normally, gifts above $19,000 per person per year (as of 2025) need to be reported to the IRS and count toward your lifetime gift-tax exclusion (currently $13.99 million per individual). With a 529 plan, you can contribute up to $85,000 per beneficiary in a single year and treat it as if you spread it over five years—a strategy called “superfunding”. This lets you put a big chunk of money toward education without using up your lifetime gift-tax exclusion.
Of course, any additional contributions beyond that five-year period still count toward the lifetime limit, so it’s smart to check with a tax advisor if you plan to contribute large sums.
Saving for college without sacrificing retirement
We believe that saving for retirement should always be the top savings priority. While you can borrow money to pay for higher education, there is no financial aid in retirement. That said, if your retirement savings are on track and saving for education is among your financial goals, choosing to invest in a 529 college savings plan may be one of the best decisions you can make to help pay for qualified college costs.
If you’re not sure how to make college savings a priority while continuing to prepare for retirement, please reach out to us to schedule a financial planning meeting with one of our professionals.