Yes, grandparents can open a 529 account for their grandchildren. This can be a meaningful way to contribute to a grandchild's future education while potentially enjoying estate planning benefits. However, it's important to understand how this may affect the student's eligibility for financial aid.
Search
How to open a 529 plan for college savings
Planning for future education expenses can feel overwhelming, but taking proactive steps now can make a significant difference for your family’s future. A 529 plan is a tax-advantaged savings vehicle designed specifically to help families save for college and other educational costs. This guide will introduce you to the benefits of a 529 plan and provide a road map for opening one.
How to set up a 529 plan
Establishing a 529 plan involves several key decisions and steps. From selecting the right state plan to choosing investment options that fit your financial strategy, understanding the process is essential. In this section, we'll break down each step to help you set up a 529 plan confidently and effectively.
1. Choose a state plan
Selecting the right state plan is an important first step. While you can choose any state’s 529 plan, some states offer tax benefits or incentives to residents who invest in their home state’s plan. Compare different state plans based on features, fees, investment options, and potential tax advantages to find one that aligns with your financial goals. Consider factors like investment options, fees, performance history, and any applicable state tax benefits. Opting for a plan with low fees and strong performance can enhance your savings over time.
2. Find a reputable financial institution
After selecting a state plan, choose a financial institution or brokerage firm that offers it. Established companies like New York Life provide access to 529 plans with professional guidance to help you navigate the complexities of college savings.
3. Select a beneficiary
Decide who will be the beneficiary of the 529 account—typically your child or another family member. You can change the beneficiary later if needed, offering flexibility as circumstances change.
4. Choose your investments
Explore the investment options available within the plan. Many 529 plans offer age-based portfolios that automatically adjust the asset allocation as the beneficiary gets closer to college age. Select investments that match your risk tolerance and time horizon.
5. Complete the application process
Fill out the required application forms provided by the financial institution. You'll need to provide personal information for both the account owner and the beneficiary. Review all terms and conditions carefully before finalizing the account setup.
Learn more about setting up a 529 college savings plan at New York Life.1
Saving for college with a 529 account
Costs are increasing dramatically for all forms of post-secondary education. On top of that, higher interest rates on loans have led to a crisis, putting many recent graduates in significant debt. As concern over these issues grows, it’s becoming clearer that the best way to pay for college is to start saving early in a child’s life.
In the past 10 years, average college costs have risen 28%, far exceeding the rate of inflation.²
There are many ways to accomplish that goal, but a 529 college savings plan is specifically designed to help you get the most out of every penny you save. Your contributions to 529 savings plans can grow tax deferred, and when your child starts using those funds for qualified education expenses, they can be used tax free.
When is the best time to start saving?
You can start a 529 savings plan as soon as the beneficiary has a Social Security number. As with all long-term investments, the longer the investment has the opportunity to grow, the better the return can be. That’s why most recommend starting immediately, even if you can’t contribute much initially. Note: The money invested in 529 savings plan is subject to market volatility, and you can lose money.
How does a 529 account save on taxes?
With a 529 savings plan, your contributions offer tax deferred growth in an investment account. Normally, you would have to pay taxes on any gains made from those investments, but with a 529, if that money is used for qualifying expenses, it can be used tax free.3 However, it’s important to follow each state’s withdrawal limits closely to avoid taxes and penalties. Calculate your potential savings. In addition, some plans provide additional state tax benefits to their residents.
What are qualified expenses for a 529 account?
It may vary by state, but generally speaking, here are the expenses that qualify for tax-free 529 withdrawals:
- Tuition for colleges or universities
- Tuition at a trade school
- Postgraduate or doctorate programs
- Up to $10,000 per year for private or public K-12 tuition
- Room and board (up to a limit)
- College class fees
- Books, computers, and materials
What is the 529 minimum to open?
There are no federally mandated minimum contributions for 529 plans, so each state sets its own rules. Minimum opening deposits can vary widely—from as low as $25 to several hundred dollars or more. Some states require a single minimum deposit (e.g., $250 or $500), while others may have no formal minimum. Increasingly, states are lowering or waiving these amounts if you set up automatic payroll or bank account deposits.
Are there contribution limits?
Contribution limit vary by state, and in 2024 they ranged from about $235,000 to over $500,000 (with many plans near the higher end). Contributing more than you need doesn’t make sense, however, as the tax advantages only apply to qualified education expenses. If you think your child’s education costs might not reach these higher limits, it’s worth planning accordingly so you don’t overfund the account.
You can open multiple 529 accounts for the same beneficiary or have different accounts for multiple beneficiaries. This flexibility allows you to tailor savings strategies to individual needs and goals.
Absolutely. Individuals can open a 529 plan for themselves to save for continuing education, career development courses, or advanced degrees.
Starting a 529 plan is generally affordable, with many plans requiring minimal initial contributions. Be sure to review any associated fees, such as enrollment or maintenance fees, which can vary by plan.
Opening separate 529 accounts for each child simplifies tracking and managing your savings for their individual education expenses. It also allows you to customize investment choices based on each child's age and needs.
Yes, you can change the beneficiary of a 529 plan to another qualifying family member, including yourself. This provides flexibility if the original beneficiary doesn't use all the funds or decides not to pursue higher education.
RELATED CONTENT
Start saving for your child’s future today with a 529 college savings plan.
We can help you pick the best possible options for you and make the most out of every penny saved.
1529 savings plans are offered through NYLIFE Securities LLC (member FINRA/SIPC), a Licensed Insurance Agency and a New York Life Company.
2“Tuition Costs of Colleges and Universities,” National Center for Education Statistics, 2021.
3Unqualified withdrawals are subject to ordinary income taxes and a 10% IRS penalty.