Why 529?
529 Plans Help More Children Reach College
529 college savings plans are tax-advantaged savings plans that help families save for higher education so they can be less reliant on student loans.
There are two types of plans:
College Savings Plans – You contribute post-tax money into your plan and those contributions are invested based on the specific plan and your risk tolerance. Your earnings are yours to use tax-free as long as they are used for qualified higher education purchases.
Prepaid Tuition Plans – 10 states – which include Florida, Maryland, Massachusetts, Michigan, Mississippi, Texas, Virginia and Washington – and one not-for-profit organization let you pre-purchase future tuition at a predetermined rate today. An account owner purchases full or partial years or individual units of tuition for a child, and when the child decides to go to college, the plan pays out based on tuition rates from when the account was originally opened.
49 states, the District of Columbia and a non-profit consortium of private colleges offer plans with their own advantages. Here’s what they all have in common:
Tax Advantages
You contribute post-tax money, and the earnings on those savings in your plan then grow free from federal and state income tax. Withdrawals remain tax-free when they are used for qualified education expenses. Many state plans have their own tax advantages as well.*
Savings Growth
Your 529 savings are invested based on your risk tolerance and the investment option in the 529 plan you choose. Those earnings are tax-free as long as they are used for qualified expenses.
Many Expenses, Many Colleges
A 529 college savings plan can be used for many education-related expenses at any accredited college in the country. That means tuition, room and board, books or other required supplies are all covered at any accredited post-secondary education institution eligible for federal financial aid.
These are just a few of the many advantages to 529 college savings plans. Read on about 529 plan features on the College Savings Plans Network site.
It’s easy to think that you have plenty of time to save when your kids are young, but in all actuality, now is the time that we needed to start saving.
”Michelle Chartrand, Mother of Five
529 FAQ
Do I have to use my state’s plan?
No, although that may be a good place to start. Many states offer tax advantages and other incentives for their residents through their 529 plan.
Does my child have to go to an in-state school?
No, you can use your 529 savings plan account at virtually any accredited college in the country. That includes four-year universities, community colleges, vocational schools, technical schools and more. Check the FAFSA website for a full list. *
What if my child gets a scholarship?
You can use 529 college savings plan accounts to cover many expenses that scholarships don’t cover, such as room and board, books and other required supplies.
Will this affect student aid?
Yes, but the effect will be minimal. The money in a 529 plan is considered an asset of the parents, not the student, so the student aid package, which focuses on the assets of the student, would only be reduced, on average, by up to 5.64% of the account value . And unlike other savings vehicles, you do not have to report the withdrawn funds as student income on the FAFSA when they’re used to pay for college.
What if my child doesn’t go to college?
You have a few options here. You can transfer the account to another child, a future grandchild or even name yourself the beneficiary for your own further education. If you want to take the money out of the plan altogether, only the earnings portion will be taxed at the federal level as income, plus a 10% penalty tax. State and local taxes may apply as well.*
529 IQ Quiz
Test Your 529 College Savings Plan Knowledge
Question 1 / 7
You can go online and open a 529 college savings account in 10 minutes.
Question 2 / 7
What former U.S. president (and first lady) were still paying off student loan debt into their 40s?
Question 3 / 7
You can use 529 college savings funds for higher education in the continental United States, but you can also use the money for higher education at:
Question 4 / 7
You can open a 529 account with a quarter … as in 25 cents.
Question 5 / 7
You have to use your home state’s 529 plan.
Question 6 / 7
You can pay for your child’s education based on today’s tuition rates.
Question 7 / 7
The number 529 actually refers to a tax code used by the IRS.
Definitely! Opening a 529 college savings account is a fast and easy process. You can go to collegesavings.org and learn more about beginning the process. Setting up your account can take less time than you might think. The point is to get started today.
Actually, it takes less time than you might think. Opening a 529 college savings account is a fast and easy process. You can go to collegesavings.org and learn more about beginning the process. Getting started early is key.
That’s correct! Barack and Michelle Obama were 44 and 41, respectively, when they finished paying off their student loans. And they aren’t the only past or present government figures paying off debt: Senators Marco Rubio and Ted Cruz have also spoken about their experiences paying off debt in their 40s.
Almost! Barack and Michelle Obama were 44 and 41, respectively, when they finished paying off their student loans. And they aren’t the only past or present government figures paying off debt: Senators Marco Rubio and Ted Cruz have also spoken about their experiences of paying off debt in their 40s.
All true! Funds can be used at any eligible educational institution in the United States, as well as many international schools and study abroad programs. Also, those eligible educational institutions aren’t limited to traditional universities – many technical skills or community colleges qualify, too. See qualified schools here.
Your funds can be used at any eligible educational institution in the United States, as well as many international schools and study abroad programs. Also, those eligible educational institutions aren’t limited to traditional universities – many technical skills or community colleges qualify, too. See qualified schools here.
True! The opening investment varies plan to plan, but many will allow you to open with just a small amount, including 10 plans that have a $0 initial investment. Learn more about the different state plans at CollegeSavings.org.
This one is tricky. The opening investment varies plan to plan, but many will allow you to open with just a small amount, including 10 plans that have a $0 initial investment. Learn more about the different state plans at CollegeSavings.org.
Correct! There are many different 529 plans that have varying features and investment options, and most are available to you. Your home state’s plan is a great place to start because they might have state tax benefits, matching programs or other incentives you can use to your advantage. But you are by no means limited in your choices.
You actually have a lot more freedom! There are many different 529 plans that have varying features and investment options, and most are available to you. Your home state’s plan is a great place to start because they might have state tax benefits, matching programs or other incentives you can use to your advantage. But you are by no means limited in your choices.
That’s right! 10 states and one not-for-profit organization have prepaid tuition plans. They let you purchase full or partial years or individual units of tuition for a child, and once they reach college age, the plan pays out based on tuition rates at that time.
You can, actually! 10 states and one not-for-profit organization offer prepaid tuition plans. They let you purchase full or partial years or individual units of tuition for a child, and once they reach college age, the plan pays out based on tuition rates at that time.
That’s true! Just like 401k for retirement, 529 college savings plans are so named because, in Section 529 of the Internal Revenue Code, they are formally listed as “Qualified Tuition Programs” administered by state agencies and organizations. Just like 401ks are specifically designed to help you save for retirement, 529 plans are designed to help you save for your child’s education.
Actually, it does refer to the tax code. Just like 401k for retirement, 529 college savings plans are so named because, in Section 529 of the Internal Revenue Code, they are formally listed as “Qualified Tuition Programs” administered by state agencies and organizations. Just like 401ks are specifically designed to help you save for retirement, 529 plans are designed to help you save for your child’s education.
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