529 COLLEGE SAVINGS PLANS Save for college or other education needs with a 529 plan

529 plans are savings plans designed specifically for educational expenses. When the money earned in a 529 plan is used to pay for a qualifying expense such as college tuition, it can be withdrawn tax-free. Anyone can open a 529 account, but parents often set them up for their children to use in the future. You’ll put after-tax dollars in a 529 plan, so you won’t pay any additional taxes when you withdraw funds to use for education.

529s are meant to fund any type of education expense, including books, college fees and tuition, graduate school, medical school, law school, trade school, and private or public K–12 education. Rules vary by state, so connect with a financial services professional to learn about the best 529 investing options for your needs and goals.

There are a number of things you can do if your child decides not to go to college. As a 529 account owner, you have the right to change the beneficiary at any time and could transfer the funds to another qualifying family member including stepchildren, grandchildren, or in-laws. You could also make yourself the beneficiary and use the money to further your own education. Or you could withdraw the funds and use them for non-educational purposes (a non-qualified withdrawal). In that case, you’d have to pay some taxes and penalty fees—but only on earnings that your investment gained. Your initial contributions are made with after-tax money, so you won’t pay additional taxes on them.

While it depends on your own needs and goals, 529 plans offer more benefits than standard savings accounts when it comes to putting money away for education. In addition to providing a number of tax advantages for qualifying expenses, some states offer income tax deductions for your 529 contributions. While 529 plans are run by state, you don’t have to be the resident of a state to invest in its 529 plan. Your financial services professional can help you determine what type of 529 plan is best for you.

Any returns you receive will depend on the types of investments you select within your plan, as well as the state in which your plan is offered. Your financial services professional can help you select and put together a 529 plan that’s most beneficial for you.

If you have extra funds in a 529 plan account that you don't want to transfer to another beneficiary, you could name yourself as the beneficiary and use the funds for your own future education. Or, you could close the account and take a non-qualified withdrawal. If you choose this option, the money that was earned by the account will be subject to income tax and a 10% penalty fee.

Technically, there are no limits on the amount of money you can contribute to a 529 account each year. However, most states do put a cap on how much you can contribute in total. Additionally, 529 plans are considered taxable gifts by the federal government, which means contributions over $17,000 will be subject to a gift tax in 2023.