What Is a 529 Plan?

What we’ll cover:

• A 529 plan is a type of investment account designed to help people save money to pay for certain education related expenses.
• 529 plans are typically administered by states, so program rules, features and contribution limits will vary state by state.
• 529 funds can be used to pay for qualified education expenses such as tuition, books, school supplies and more.

What Is a 529 Plan?

A 529 plan is a type of investment account with special tax advantages to help people save money to pay for certain education-related expenses. These plans, sometimes referred to as “qualified tuition programs,” are typically administered by states.

Want to get a head start on saving for your kids' education? Interested in helping out a family member? Or maybe you're planning to return to school yourself one day?

Then a 529 savings plan could be right for you.

Two types of 529 plans

Education Savings Plans. This is a savings account where you (the account owner) can put money away to help pay for qualified education expenses. The beneficiary of the account can be your kids, yourself, or anyone else you’d like to help out. These 529 plans offer a variety of investment options; the details of these plans will vary state by state.

Prepaid Tuition Plans. These plans are less common. As the name implies, they allow you to pay the tuition for certain colleges or universities in advance. The idea of prepaying essentially allows you to lock in current tuition rates even though the beneficiary (i.e., the student) may not actually enter college for several years. Unlike education savings account plans, most prepaid tuition plans cannot be used to cover the costs of room and board. 529 prepaid plans can be sponsored by states or by participating higher education institutions.

How to open a 529 plan 

States, as well as the District of Columbia, administer their own 529 plans, so plan rules, features, and contribution limits will vary state to state. When you’re ready to open an account, you can contact the specific state agency that’s in charge of the 529 plan you’re interested in. They will be able to provide the information you need to open a 529 account.

The College Savings Plans Network (CSPN), an affiliate of the National Association of State Treasurers, has a resource center for those interested in learning more about the specifics of each state’s 529 plan(s). CSPN also provides direct links to plan websites and phone numbers to contact the plan sponsors.

Do I have to choose my own state’s 529 plan?

No – you can invest in an out-of-state 529 plan. But it’s a good idea to look at your home state’s 529 program first. Some 529 plans offer state residents tax breaks and other benefits that might not be available to out-of-state residents.

If you don’t like your state’s investment options, fees, or other plan features - you’re allowed to shop around to find a 529 plan that best suits your needs.

Good to know: The CSPN website has a tool that allows you to compare plans by state and by features.

Who can open a 529 plan?

US residents who are over the age of 18 can open an account. You must be able to provide a US mailing address and a Social Security number.

When you open an account, you can generally name anyone as the beneficiary. The 529 account could be for your child, other family members, or anyone else you’d like to help out. He or she must be a US resident or citizen and have a Social Security number.

Once you’ve opened a 529 account, you can start contributing to it. Generally speaking, the money in the account can grow tax-free. When you’re ready to use your funds, you can withdraw the money tax-free, so long as it’s being used to cover qualified education expenses.

What are qualified education expenses?

This includes things like K-12 education (up to $10,000 per year, per beneficiary) and qualified higher education expenses like college tuition, room and board, books, school supplies, and computer equipment.

In December 2019, Congress expanded the category of qualified educational expenses with the passage of the SECURE Act. Under the act, 529 savings plans can be used to pay for registered apprenticeships and student loan repayments of up to $10,000.

Are there contribution limits to 529 plans?

Yes. Keep in mind that since 529 plans are administered by states, contribution rules and limits will vary state by state. It’s a good idea to get the complete details and most up-to-date figures directly from your state agency.

Are there state income tax benefits for making 529 plan contributions?

The answer depends on where you live and which state plan you have. Many states and the District of Columbia offer a state income tax deduction or credit. Typically, to be eligible for the tax break, you need to be a resident of the state that sponsors your 529 plan.

Keep in mind that tax benefits and rules are subject to change, so it's a good idea to check in with a tax professional for the most up-to-date information.

Are contributions to 529 plans subject to the gift tax?

Putting money into a 529 plan to help someone cover their education costs is a pretty thoughtful gift. For tax purposes, 529 plan contributions are considered gifts, which means that the gift tax might apply to your contributions if they exceed a certain amount.

Gifts are generally taxable. But the IRS does provide an annual gift tax exclusion – this is the amount a person can give to others tax-free each year.

For 2025, the annual gift tax exclusion is $19,000 ($18,000 for 2024). Generally speaking, this means that you could contribute up to $19,000 tax-free to a family member’s 529 plan.

But remember, tax rules are always subject to change. Consult a financial advisor or tax professional if you have any questions about opening or contributing to a 529 plan.

Anything else to know?

529 accounts could be rolled over to a Roth IRA. With the passage of the SECURE Act 2.0, effective in 2024, certain assets in a 529 college savings account can be rolled over tax-free into a Roth IRA for the 529 beneficiary where the account has been maintained for more than 15 years.

Rollovers are subject to Roth IRA annual contribution limits as to the beneficiary but not subject to the income limits. Rollovers are limited to a lifetime limit of $35,000 and apply only to contributions to the account (and earnings) before the five-year period ending on the rollover date. Consult a tax professional for more details.