What You Need to Know About 529 Plans

When it comes to saving for a child’s or grandchild’s education, few tools are as tax-advantaged and flexible as 529 plans. Whether you’re a parent planning for your child’s college tuition or a grandparent wanting to leave a legacy of learning, 529 plans offer an excellent way to invest in their future—while potentially saving on taxes. Here’s what you need to know about 529 plans.

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June 4, 2025

What Are 529 Plans?

529 plans are tax-advantaged savings plans designed specifically to help families set money aside for education expenses. Named after Section 529 of the Internal Revenue Code, these plans are sponsored by states, state agencies, or educational institutions.

There are two types of 529 plans:

Education savings plans, which allow you to invest in a portfolio of mutual funds or exchange-traded funds (ETFs) for future qualified education expenses.
Prepaid tuition plans, which let you lock in current tuition rates for future use at specific colleges.

However, the most common option—and the one with broader use—is the education savings plan.

Major Tax Benefits of 529 Plans

One of the biggest reasons to consider a 529 plan is the triple tax advantage:

Contributions grow tax-deferred, meaning you won’t pay taxes on the earnings each year.
Withdrawals are tax-free when used for qualified education expenses, such as tuition, books, computers, and even certain K-12 costs.
In some states, you may also get a state income tax deduction or credit for contributions.

Flexible Use Beyond College

Traditionally used for college expenses, 529 plans now offer even more flexibility. Thanks to recent tax law changes:

You can use up to $10,000 per year per student for K–12 tuition at public, private, or religious schools.
You can also use $10,000 (lifetime per beneficiary) to repay student loans.
Funds may also be used for apprenticeship programs, as long as they are registered with the U.S. Department of Labor.

This expanded usage makes 529 plans more attractive for families looking for flexible long-term education savings.

Little to No Contribution Limits

A key benefit that you need to know about 529 plans is that there’s no federal contribution limit, while states allow generous maximums, often exceeding $500,000 per beneficiary.

Additionally, 529 plans offer unique advantages for gift tax planning. In 2025, the annual federal gift tax exclusion is $19,000 per recipient—or $38,000 for married couples. With 529 plans, you can contribute up to five years’ worth of gifts in a single year without triggering gift tax. For example, an individual can contribute up to $95,000 to a beneficiary’s 529 plan ($19,000 × 5), or $190,000 for married couples.

Are 529 Plans Right for You?

If you’re looking to support a loved one’s education, 529 plans are worth a serious look. They offer significant tax savings, generous contribution limits, and broad usage for education at all stages of life.

If you have questions about the tax implications of 529 plans, contact us for a free consultation.

References

529 plans: Questions and answers. Internal Revenue Service. https://www.irs.gov/newsroom/529-plans-questions-and-answers