What is a 529 plan?

Saving for college can seem like a daunting challenge, but a 529 plan can help you get started.

Frequently Asked Questions

A 529 plan is a tax-advantaged savings plan for future education costs. Savings can be used for tuition, books, and other education-related expenses at eligible two- and four-year colleges and universities, US vocational-technical schools, and eligible foreign institutions, along with K-12 tuition in some states.

Compare education savings plans

There are multiple options for education savings, and each has its own unique set of rules, features, and potential benefits. Learn about the different types of savings accounts to find what works best for you.

2024 Rules	529 plan (a)	Coverdell Education Savings Accounts (CESAs) (b)	UGMA / UTMA custodial accounts (c)
	Operated by a state or educational institution, these plans are designed to make it easy to save for education for a child, grandchild, or other designated beneficiary. While certain withdrawals are subject to federal, state, and local taxes, 529 savings plans are tax-advantaged savings plans that have high contribution limits and allow earnings to grow tax-free when used for education expenses. Many states also offer additional tax incentives.	These accounts are used to pay the education expenses of a designated beneficiary. Withdrawals can be used for qualified elementary and secondary education expenses, as well as for college. However, there are qualifications and restrictions to consider before opening a CESA.	These accounts can be used by parents or grandparents to invest in a child's education, while taking advantage of the child's generally lower tax rate. Because minors can't directly own an investment or bank account, an adult custodian must manage and use the funds for the benefit of the minor child, as prescribed under the state's Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA).
Federal and financial aid treatment
Contributions	Contributions are made with after-tax dollars.	Contributions are made with after-tax dollars.	Contributions are made with after-tax dollars.
Federal income tax	Earnings grow tax-free and are free from federal income tax when used for qualified education expenses.¹,²	Earnings grow tax-free and are free from federal income tax when used for qualified education expenses.¹	Earnings and capital gains are taxed at the minor's tax rate.⁶
Federal gift tax²	Contributions are treated as gifts. Annual gift tax exclusion: $18,000 per donor ($36,000 if married, filing jointly) per beneficiary Note: A contribution in excess of the annual gift tax exclusion amount up to $90,000 ($180,000 if married, filing jointly) can be prorated over five years and treated as a gift in each of those years.	Contributions are treated as gifts. Annual gift tax exclusion: $18,000 per donor ($36,000 if married, filing jointly) per beneficiary	Gifts and transfers to the minor are treated as completed gifts. Annual gift tax exclusion: $18,000 per donor ($36,000 if married, filing jointly) per beneficiary
Federal estate tax	The value is removed from the donor's gross estate (up to $90,000 ($180,000 if married, filing jointly).⁷	The value is removed from the donor's gross estate.	The value is removed from the donor's gross estate unless the donor remains as the custodian.
Impact on federal financial aid	If the parent is the account owner, funds count as an asset of the parent and are assessed up to 5.6%.	If the parent is the account owner, funds count as an asset of the parent and are assessed up to 5.6%.	Funds are counted as the student's assets and assessed at 20%.
Qualified and non-qualified withdrawals
Qualified expenses¹,⁸	Withdrawals are qualified when used to pay for tuition, fees, books, computers and related equipment, supplies, special needs, and room and board (including off-campus housing) for minimum half-time students. Withdrawals may be allowed for qualified K-12 education according to state statutes.	Withdrawals are qualified when used to pay for tuition, fees, books, supplies, equipment, special needs, and room and board for minimum half-time students. Withdrawals may be allowed for qualified K-12 education according to state statutes.	No restrictions
Non-qualified withdrawals	Non-qualified withdrawals may be subject to federal income tax and a 10% federal tax penalty, as well as state and local income taxes.	Non-qualified withdrawals may be subject to federal income tax and a 10% federal tax penalty, as well as state and local income taxes.	Funds must be used for the benefit of the minor.
Program restrictions
Maximum investment	Established by the program	$2,000 per beneficiary per year combined from all sources	No limit
Ability to change beneficiary	The beneficiary can be changed to another member of the beneficiary's family.	The beneficiary can be changed to another member of the beneficiary's family.	The beneficiary cannot be changed. The account represents an irrevocable gift to the child.
Time/age restrictions	There is no age restriction unless imposed by the program.	Contributions can be made until the beneficiary reaches age 18. The balance of the account must be distributed 30 days after the beneficiary reaches age 30.⁶	Custodianship terminates when the beneficiary reaches the age of majority established under state law (generally 18 or 21).
Income restrictions	None	The ability to contribute phases out for income between $95,000 and $110,000 (single filers) or $190,000 and $220,000 (if married, filing jointly).	None

Source: Savingforcollege.com

(a) 529 plans - Operated by a state or educational institution, 529 plans are designed to make it easy to save for education for a child, grandchild or other designated beneficiary. While certain withdrawals are subject to federal, state and local taxes, 529 savings plans are tax-advantaged savings plans that have high contribution limits and allow earnings to grow tax-free when used for education expenses. Many states also offer additional tax incentives.

(b) Coverdell Education Savings Accounts (CESAs) - These accounts are used to pay the education expenses of a designated beneficiary. Withdrawals can be used for qualified elementary and secondary education expenses, as well as for college. However, there are qualifications and restrictions to consider before opening a CESA.

(c) (UGMA/UTMA) - Custodial accounts can be used by parents or grandparents to invest in a child's education, while taking advantage of the child's generally lower tax rate. Because minors can't directly own an investment or bank account, an adult custodian must manage and use the funds for the benefit of the minor child, as prescribed under the state’s Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA).

1 Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements, and certain withdrawals are subject to federal, state, and local taxes.

2 Some states also offer state tax deductions and credits. Contact your tax advisor for more information.

3 A plan of regular investment cannot assure a profit or protect against a loss in a declining market.

4 Any US citizen or resident alien can open and/or contribute to a 529 plan.

5 For beneficiary changes to occur without federal or state income tax consequences, the new beneficiary must be a family member of the current beneficiary.

6 The first $1,050 of a child's unearned income is tax-exempt; income over $2,100 is taxed at the parents' rate if the child is under 18 or is a full-time student under age 24. If the child is 19 or older at the end of the tax year and is not a full-time student, all investment income is taxed at the child's rate.

7 Partial inclusion for the contributor's death during the five-year election period. Please contact your tax advisor for more information.

8 The tax treatment of such withdrawals at the state level may be determined by the taxpayer's state of residence. Account owners should consult their tax advisors for further guidance.