529 College Savings Plan


Raising a child in this day and age isn’t easy – or inexpensive. In fact, college costs are rising faster than the rate of inflation. If you have dreams of your child going to the college of his or her choice, keep in mind that the cost of a four-year college education in 2024 is expected to climb to $160,000 for a public institution and $345,000 for a private university.*

So whether you are raising a child of your own, looking to finance your own higher education degree or want to plan for a cherished family member, there is good news. Named after Section 529 of the Internal Revenue Code, a 529 College Savings Plan is a state-sponsored tax-advantaged investment program that facilitates savings for college and allows you to put aside a considerable amount of money today to meet tomorrow’s high education costs. Here’s how:


Earnings on contributions to a 529 plan grow tax deferred and withdrawals are exempt from federal income taxes when used for qualified higher education expenses. State tax benefits vary by state and plan. So, please make sure you check the state’s “in-state tax benefit” before making a final decision and remember existing tax laws can change at any time. Those qualified higher education expenses are generally limited to tuition, fees, room and board, books, supplies and equipment used at an accredited college or university in the U.S. – public or private, undergraduate or graduate. Any distributions from a 529 plan not used for qualified higher expenses may be subject to federal, possibly state, income taxes and a 10% federal tax penalty. Also, while the total amount you may contribute to an individual account varies by states, generally can make a one-time contribution of the maximum annual exclusion accelerated for the current year and the next four years.


A 529 plan can be opened for anyone: children, grandchildren, siblings, nieces, nephews, partners, friends, and even yourself. There are no income limitations or age restrictions regarding who can open an account. The account holder maintains control over the funds, decides when withdrawals are taken and how the money is spent. Gay and lesbian couples should pay close attention considering transferring a 529 plan to another beneficiary as the new beneficiary must be a close family relative of the original beneficiary, otherwise there may be adverse tax consequences.


Choices of investment options are available though the selection is limited to the offering provided by the state sponsoring the 529 plan. There may also be limits on changing the asset allocation by the account holder.


You can make a tax-free rollover of benefits from one state’s 529 Plan to another’s for the same beneficiary (subject to certain restrictions and the potential forfeiture of certain state tax breaks).

In addition to 529 College Savings Plans, there are also 529 Prepaid Tuition Plans which generally allow donors to fund future education expenses – tuition, and in some instances, room and board – at specific in-state (typically public) colleges at current rates, which provides protection against rising higher education costs. Some plans provide additional benefits for state residents, and funding options range from one-time, lump-sum contribu- tions to monthly installment payments.