A 529 plan is a tax-advantaged savings account designed to encourage saving for future education costs. As of 2026, contributions grow federal tax-free and withdrawals are tax-free when used for qualified education expenses, including college tuition, fees, books, and room and board.
Recent federal legislation, such as the SECURE Act of 2019 and subsequent updates, expanded 529 plan benefits. Starting in 2024, unused 529 funds can be rolled over into a Roth IRA for the beneficiary, up to a lifetime limit of $35,000, subject to annual Roth contribution limits. This change addresses concerns about over-saving.
Additionally, 529 plans can now be used for K-12 tuition (up to $10,000 per year per beneficiary) and registered apprenticeship programs. The Tax Cuts and Jobs Act of 2017 first allowed K-12 withdrawals, and the SECURE 2.0 Act of 2022 added apprenticeship expenses and the Roth rollover option.
State tax benefits vary. Many states offer a deduction or credit for contributions to their own 529 plan. However, some states recapture the deduction if funds are used for non-qualified expenses. As of 2026, over 30 states offer a state income tax deduction for 529 contributions.
Investors should compare plans based on fees, investment options, and state tax benefits. The best plan for one family may not be ideal for another. Financial advisors recommend starting early to maximize compound growth, even with small contributions.
