Important things to know about 529 education savings plans

Tax advantages

The earnings from your 529 savings plan aren’t subject to federal tax. Not when they’re in the account and not when you withdraw them either, as long as you use them for qualified education expenses. In addition, depending on your state’s rules, you may be able to deduct some or all of your contributions. These tax advantages apply to qualified education expenses. State tax treatment varies. If withdrawals are used for purposes other than qualified education expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax. States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K-12 expenses may not be exempt from state tax in certain states.

Learn about qualified education expenses

The money in a 529 savings plan isn’t limited to four-year universities. Community colleges, seminaries or trade schools or certain apprenticeship programs … any path your child chooses that involves professional training at an accredited institution could be eligible for tax-advantaged treatment in a 529 savings plan. Qualified expenses also include expenses for fees, books, supplies and equipment required for the participation of a designated beneficiary in certain apprenticeship programs.

And thanks to changes made by the One Big Beautiful Bill Act (OBBBA), 529 accounts can now be used to cover a wider array of qualified educational expenses, including certain postsecondary credentialing program expenses and expenses in connection with enrollment or attendance at an elementary or secondary public, private or religious school (kindergarten through 12th grade) beyond just tuition.

Also, a younger child can take advantage of the money you saved in your 529 savings plan. Now, qualified K-12 expenses include (but are not limited to) tuition, curriculum materials, textbooks, instructional materials, and online education materials up to a maximum of $10,000 incurred during the taxable year per beneficiary. Additionally, starting in 2026, the annual limit for K-12 expenses will increase from $10,000 to $20,000. However, note that not all states treat K-12 expense as qualified expense for state tax purposes.

You don’t have to stay local

Most states have a 529 savings plan, including Washington, D.C. But just because you live in a certain state doesn’t mean you’re required to use its 529 savings plan. For instance, CollegeAmerica® is sponsored by the Commonwealth of Virginia, but you can invest in it no matter where you live, as long as it’s in the U.S.

Some states offer additional tax benefits, and each plan features different investment options. So it's a good idea to research which plan fits the needs of your family. 

Stay flexible

You can always transfer the account to another family member — as long as the new beneficiary is related to the original beneficiary. So, if your first child gets a scholarship and doesn’t need all of the funds in their account, you can change the beneficiary to another child to be used for their education goals. Or you can use the money for yourself to get that next degree. You can even choose to hold on to it for a future grandchild.

Parents rule

There are two participants in a CollegeAmerica and other 529 savings plans: the account owner and the beneficiary. Usually the account owner is the parent or grandparent, and the beneficiary is a minor. The account owner maintains and controls the account, making all the decisions about taking withdrawals and changing beneficiaries, for instance, as well as selecting investments. So you, as the owner, have the final say about how and when the money will be used. Better yet, you can easily change the beneficiary and transfer the funds to an eligible family member if no longer needed by the original beneficiary.

Contributions, please!

Another great feature: gifting. Anyone can contribute to your child’s 529 savings plan. Most often, grandparents, aunts, uncles and friends enjoy the opportunity to gift a contribution that goes directly to education savings on birthdays and holidays. And when your child starts that first job — even washing cars or babysitting — they can make contributions, too. Every little bit will help.