529 Education Savings Plans

Why this matters

This optional lesson is for anyone saving toward someone's education, whether a child's, a grandchild's, or their own. A 529 plan can let that money grow without federal tax, as long as it's eventually spent on education. The catch is in that last condition.

What a 529 plan is

A 529 plan, legally a qualified tuition plan, is a tax-advantaged way to save for future education costs. Plans are sponsored by states, state agencies, or educational institutions. The person who opens the account owns it, and the student it's for is called the beneficiary.¹ There are two types:

• Education savings plans work like an investment account. You usually choose among options such as mutual funds, ETFs, and a principal-protected bank product. Many offer age-based portfolios, which shift toward more conservative investments as the beneficiary gets closer to college age, much like a target-date fund.¹
• Prepaid tuition plans let you buy credits toward future tuition and mandatory fees at today's prices, usually at public in-state colleges. They're less flexible, often have residency requirements, and aren't guaranteed by the federal government. Some states guarantee their plans and some don't.¹

The tax treatment

• Going in: contributions aren't deductible on your federal return.² Many states offer their own benefits, such as a state tax deduction or matching grants, sometimes only if you use your own state's plan.¹
• Coming out: when withdrawals pay for qualified expenses, the earnings aren't subject to federal income tax, and in many cases not to state income tax either.¹

What counts as a qualified expense

• College and other higher education: tuition, fees, books, and room and board at an eligible school, with room and board generally requiring at least half-time enrollment.²
• Elementary and secondary school: up to $20,000 a year per beneficiary for tuition and certain other expenses at public, private, or religious schools.¹ The cap rose from $10,000 starting in 2026.³
• Apprenticeships and credentials: certain expenses for registered apprenticeship programs¹ and for recognized postsecondary credential programs.²
• Student loans: up to $10,000 in total per beneficiary.¹

The rest of this lesson is for members

Still to come in this lesson: Withdrawals for anything else, Choosing a plan, the key takeaways, and 2 quiz questions with explanations.

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