529 College Savings Plan Guide: Tax Benefits and How To Start

How to open one in 30 minutes

1. 1

   Check your own state plan first for a state income tax deduction or credit.

2. 2

   If your state offers no tax break, compare low-fee plans from any state.

3. 3

   Open the account with yourself as owner and your child as beneficiary.

4. 4

   Choose the age-based or target-enrollment portfolio unless you want to manage allocation yourself.

5. 5

   Automate a monthly contribution, even if it is $50.

The tax benefits, precisely

• Federal: earnings grow tax-free; qualified withdrawals are entirely tax-free.
• State: most states with income tax offer a deduction or credit for contributions.
• Contribution limits are very high overall, though large gifts have gift-tax reporting rules.
• Anyone can contribute — grandparents, relatives, and friends can gift into the same account.

What counts as a qualified expense

• Tuition and mandatory fees at eligible colleges, universities, and trade schools.
• Room and board, up to the school’s published cost of attendance, if enrolled at least half time.
• Books, supplies, and required equipment including a computer.
• Registered apprenticeship program costs and a lifetime cap toward student loan repayment.
• K–12 tuition up to an annual limit in most states.

What if there is money left over?

• Change the beneficiary to a sibling, cousin, or even yourself.
• Roll unused funds into a Roth IRA for the beneficiary, subject to a lifetime cap and a 15-year account age requirement.
• Use it for graduate school later — there is no expiration date.
• Withdraw it and pay tax plus a penalty on earnings alone; your contributions come back untouched.