Saving up for college these days can be hard. Luckily, there are some strategies you can implement that can help ease that burden, like 529 plans.

A 529 plan is a tax-advantaged account that enables you to save for education. Growth and qualified withdrawals from the account are tax-free; many states offer additional tax perks; funds can be used for K–12 tuition (federal cap), college, apprenticeships, and a portion of student loans; and unused dollars may be rolled to a Roth IRA for the beneficiary, under specific rules. 

The following guide explains the latest 2025 rules in plain English and shows you how to choose and use a 529 plan.

Who this guide is for

• Parents and grandparents saving for a child’s education
• Adults saving for their own degrees, credentials, or apprenticeships
• High earners seeking tax-efficient, estate-friendly education funding

What is a 529 plan?

A 529 plan is a state-sponsored, tax-advantaged savings account for education. Anyone can open one and name a beneficiary (even yourself). Money can be used at eligible U.S. and international institutions for qualified education expenses. 

The two types of 529 plans

There are two different types of 529 plans, and they both have their own perks and nuances.

Note: You can own a plan in any state. Compare investment options, fees, and your state’s tax benefits before choosing.

What expenses are qualified?

The specific benefits of 529 plans vary by state (check with your specific state and plan rules), but common qualified uses include:

• College and graduate school tuition and mandatory fees
• K–12 tuition, up to a $10,000 federal annual cap per student (see the IRS explanation)
• Room and board for eligible students subject to school-published limits (see IRS Pub 970)
• Books, supplies, laptop or computer, internet, and required software
• Registered apprenticeship expenses
• Accessibility equipment for students with special needs
• Student loan repayment up to a lifetime cap per borrower

Tip: Keep receipts. Withdraw in the same calendar year you pay the expense. This Fidelity guide explains how to match withdrawals to qualifying expenses.

2025 tax benefits and key numbers

• Federal tax treatment: Tax-free growth and tax-free qualified withdrawals.
• State tax perks: Many states offer a deduction or credit for contributions to their plan (rules vary by state).
• Annual gift tax exclusion 2025: You may give up to $19,000 per recipient without filing a gift tax return. The limit is higher if spouses elect gift-splitting.
• Superfunding: You may front-load five years’ of annual gifts at once per beneficiary under special 529 rules.
• Annual contribution caps: There are no federal annual contribution caps for 529 plans, but each state sets a high aggregate limit per beneficiary.
• Investment changes: Most plans allow two investment changes per calendar year. 

Using 529 plans for K–12 and student loans

• K–12 tuition: 529 plan funds can be used for primary or secondary school tuition up to a federal cap per student each year.
• Student loan repayment: Up to $10,000 lifetime per borrower from a 529 plan for qualified loans, plus an additional $10,000 lifetime for each of the beneficiary’s siblings. 

New flexibility in 2025: 529 to Roth IRA rollovers

If you have leftover funds, certain amounts can be rolled into a Roth IRA for the beneficiary, tax- and penalty-free, provided they adhere to several rules. Key rules to know include:

• The 529 must have been open for at least 15 years
• Only funds and earnings that are older than five years are eligible
• Rollovers are limited by the annual IRA contribution limit for the beneficiary
• There’s a lifetime cap of $35,000 per beneficiary

Do 529s hurt financial aid?

• Parent-owned 529 plans count as a parent asset on the FAFSA and are generally assessed at a modest rate compared with student assets.
• Distributions from a parent-owned 529 plan for qualified expenses are not counted as student income.
• For grandparent-owned 529 plans, under the FAFSA Simplification Act in effect for the 2024–25 year and forward, cash support is no longer reported on the FAFSA. As a result, qualified distributions from a grandparent-owned 529 plan are not treated as student income on the FAFSA.
• CSS Profile schools may treat assets and distributions differently. Check each school’s policy.

Contribution and withdrawal rules

• 529 plans have no annual federal contribution limit. However, states set their own contribution limits, which currently range between $235,000 and $530,000.
• Contributions that exceed the gift tax exclusion may have tax implications. In 2025, the amount is $19,000.
• Pace contributions by setting up one-time or recurring contributions. Automation helps you stay on track.
• Timing matters, so match withdrawals to expenses in the same calendar year.
• For non-qualified withdrawals, the earnings portion is subject to income tax plus a 10% federal penalty. State taxes may also apply.
• There are penalty exceptions, as scholarships, employer or VA education assistance, and attendance at a U.S. military academy may allow penalty-free non-qualified withdrawals. Income tax on earnings can still apply.

Fees, costs, and what to watch

Like any investment, 529 plans come with fees and expenses, and costs vary. Look for:

• Program or administrative fees
• Application fees
• Maintenance fees
• Underlying fund expense ratios
• Sales charges if you buy a broker-sold plan

Lower costs can compound into meaningfully higher balances over long time horizons. Compare your home state’s plan against high-quality low fee options elsewhere.

What if you “over save” or plans change?

Even the best-laid plans can change. Maybe your child doesn’t want to go to college. Maybe they earned a scholarship that covers their educational expenses. Or maybe you’re not going to need to use all of the funds in the account. 

You have options:

• Change the beneficiary to another family member or yourself
• Use the student loan repayment allowance
• Roll over to a Roth IRA for the beneficiary, subject to the rules above
• Withdraw for non-qualified use and pay tax and penalty on earnings only

Pros and cons at a glance

Pros

• Tax-deferred growth and tax-free withdrawals for qualified expenses
• Potential state tax deductions or credits
• High aggregate contribution limits
• Estate planning advantages because you keep account control
• Flexibility if plans change, including beneficiary changes and the Roth rollover option

Cons

• Non-qualified withdrawals trigger tax and penalties on earnings
• Investment menu is plan defined and is not a full brokerage account
• State specific rules and benefits require research

How to choose a 529 plan in 5 steps

1. Check your state’s tax perks, including deductions or credits and any match.
2. Compare fees and investments, including age-based glide paths, index options, and stable value.
3. Decide a contribution strategy, such as monthly auto-save versus superfunding.
4. Align risk to your time horizon. Younger beneficiaries generally fit more into equities, and those nearing college often shift toward bonds and cash.
5. Set up recordkeeping. Save invoices and Form 1099 Q and match calendar years.

Navigating the world of 529 college savings plans can seem complex, but with the right information, you can make confident decisions to secure your child’s educational future.

If you’re not sure how much you need to save or would like to learn more about tax treatment, investment options, or types of plans available in various states, reach out to a financial advisor.

Helpful Wealth Enhancement resources 

• How 529 plans affect FAFSA
• Coverdell ESA vs 529 comparison
• SECURE 2.0 and 529 to Roth overview
• Annual gift tax exclusion strategies
• Roth conversion considerations

529 Plan FAQs

Can I open a 529 plan for someone other than my child?

Yes. You can open an account for any beneficiary, including yourself. Contributions are typically considered completed gifts for estate purposes. 

Can I invest in a 529 plan from another state?

Yes. You are free to shop nationwide, but your home state may offer resident-only tax perks. Compare fees, options, and state benefits before you decide.

How often can I change investments?

Generally, twice per calendar year or whenever you change the beneficiary. 

Are contributions tax-deductible?

There is no federal deduction. Many states offer a deduction or credit for contributions to their own plan. Rules vary by state. 

Do 529 plans have an annual contribution limit?

There is no federal annual cap for contributions to a 529 account. Federal gift tax rules still apply, and states set aggregate account limits. See the 2025 annual exclusion.

What is the right amount to save?

A good strategy is to start with the net cost of the school types you are targeting after aid. Subtract expected scholarships and grants. Build a monthly savings plan to close the gap. If you would like help, request a meeting with a financial advisor.

This information is not intended to be a substitute for individualized tax or legal advice. Please consult a qualified professional regarding your specific situation.

Plan rules and tax laws are subject to change.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. Investing involves risk, including possible loss of principal.

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