A 529 plan is a saving plan which provides tax advantages to encourage saving for college. 529 plans are sponsored by states, state agencies, or educational institutions. There are two types of 529 plans: Prepaid Plans and College Savings Plans.

Plan Types

• The 529 College Savings Plans grows tax-free and can be withdrawn tax-free for educational expenses like tuition, room and board, and required textbooks and computers.
• The 529 Prepaid Plans allow you to prepay part or all of an in-state public tuition, locking in the tuition at time of payment.

Your 529 plan investment will grow tax-deferred, and qualified withdrawals are federally tax-free and state-tax exempt in many states. 34 states offer tax deductions or credits on contributions to 529 plans. Click on the map below to see if your state offers a tax deduction or credit.
 

Can I pick a 529 plan in a different state?

Yes, however your state’s 529 plan may offer incentives to win your business. For instance, in the state of Indiana taxpayers can earn a state income tax credit equal to 20% of their contributions to a CollegeChoice 529 account, up to $1,000 per year. Since I’m a resident of Indiana, I will receive a $1,000 state income tax credit if I were to contribute $5,000 to the Indiana 529 plan. These incentives are state specific.

Can I use my 529 plan on non-educational expenses?

No, if you withdraw money from a 529 plan and do not use it on a qualifying eligible college expense, you will be subject to income tax and an additional 10% federal tax penalty on earnings.

Who is eligible for a 529 plan?

Any U.S. taxpayer can open a 529 plan for a U.S. Citizen or Resident Alien, including themselves. There is no limit to the number of plans you set up, and there are no income restrictions.

Whose name should I put on the 529 plan?

Whoever purchases the 529 plan is the custodian and controls the funds until they are withdrawn. You, as the custodian of the plan, will ultimately decide when the funds are released and what they are used for. You will set a beneficiary when you create the plan, however there is no penalty if you decide to change the beneficiary in the future.

2026 contribution limits and tax rules

For 2026, you can contribute up to $18,000 per beneficiary per year ($36,000 for married couples filing jointly) without triggering federal gift-tax reporting. The 5-year accelerated election lets you front-load five years of contributions in a single year — up to $90,000 individual / $180,000 joint — by filing a Form 709 gift tax return.

There’s no annual federal contribution limit, but each state caps the lifetime balance per beneficiary (typically $300,000 to $550,000+). Once the account exceeds the cap, contributions stop but the existing balance keeps growing tax-deferred.

State income tax deductions (often the biggest win)

Over 30 states offer a state income tax deduction or credit for 529 contributions. The benefit varies widely:

• New York: Deduct up to $5,000 single / $10,000 joint per year (must use NY’s 529 plan)
• Pennsylvania: Deduct up to the annual gift-tax exclusion per beneficiary, ANY state’s plan
• Indiana: 20% tax credit on contributions up to $7,500 (worth up to $1,500 in credit)
• Illinois: Deduct up to $10,000 single / $20,000 joint (Illinois plan required)
• Ohio: Deduct up to $4,000 per beneficiary, ANY state’s plan, unlimited carryforward
• Texas, Florida, Tennessee: No state income tax, so no state-level deduction

Some states require you to use that state’s plan to claim the deduction; others (Arizona, Kansas, Maine, Minnesota, Missouri, Montana, Pennsylvania) let you contribute to any state’s plan. Always check your state’s rules before opening an account elsewhere.

Federal tax-free growth

Money inside a 529 grows federally tax-free as long as withdrawals are used for qualified education expenses. Qualified expenses include:

• Tuition and fees
• Books, supplies, required equipment (laptops, software)
• Room and board (within the school’s published cost-of-attendance)
• Up to $10,000/year for K-12 tuition
• Up to $10,000 lifetime in qualified student loan repayment
• Apprenticeship program costs (registered with the Department of Labor)

Non-qualified withdrawals incur federal income tax on the earnings portion plus a 10% federal penalty. The state may also reclaim its previously-granted deduction.

Recent changes from the SECURE 2.0 Act

Starting in 2024, SECURE 2.0 added a powerful flexibility: unused 529 funds can be rolled over to a Roth IRA for the beneficiary. The rules are strict but useful:

• The 529 must have been open for at least 15 years
• Contributions and earnings from the last 5 years aren’t eligible for rollover
• Lifetime rollover cap: $35,000 per beneficiary
• Subject to annual Roth IRA contribution limits ($7,000 in 2026)
• The beneficiary needs earned income at least equal to the rollover amount

This effectively removes the biggest historical concern about over-funding a 529 — that the money would be “trapped” if the child didn’t need it for school.

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FAQs about 529 plans

Can I have multiple 529 plans for the same child?

Yes. Parents, grandparents, aunts, and friends can each open separate accounts for the same beneficiary. The combined balance just needs to stay under the state’s lifetime cap.

What if my child gets a full scholarship?

You can withdraw an amount equal to the scholarship without the 10% penalty (you still owe federal income tax on the earnings). Or you can change the beneficiary to another family member, including yourself, with no penalty.

Are 529 plans considered assets for financial aid?

Yes, but they’re treated favorably. Parent-owned 529s are assessed at up to 5.64% of value on the FAFSA — far better than student-owned UTMA accounts (20%). Grandparent-owned 529s have no impact on the new FAFSA (post-2024 simplification).

Do 529 plans expire?

No. There’s no time limit. Money in a 529 can sit indefinitely, grow tax-free, and be used decades later — including for graduate school, the beneficiary’s children, or now Roth IRA rollovers under SECURE 2.0.