Planning for education expenses can feel overwhelming, but 529 plans offer a powerful, tax-advantaged way to save for the future. Whether you’re a parent, grandparent, or guardian, these plans are a flexible and strategic tool for funding everything from K–12 tuition to college and even student loan repayment.
Ahead of May 29th (5/29)- commonly recognized as National 529 Day- we break down what a 529 plan is and why it deserves a place in your long-term financial strategy.
What is a 529 Plan?
A 529 plan is a tax-advantaged savings account designed specifically for education costs. Named after Section 529 of the Internal Revenue Code, these plans are sponsored by states, state agencies, or educational institutions. The most popular type of 529 plan is the College Savings Plan, which operates like an investment account with tax-free growth and tax-free withdrawals for qualified education expenses.
Now let’s explore why 529 plans are such a powerful education savings tool.
Top Benefits of a 529 Plan
Tax Advantages
Arguably the most significant benefit of a 529 plan is its exceptional tax benefits:
- Tax-free growth: Investments grow tax-deferred, meaning you won’t pay taxes on the earnings while your money is in the account.
- Tax-free withdrawals: When the funds are used for qualified education expenses—like tuition, books, supplies, and room and board—they can be withdrawn tax-free.
- State tax deductions or credits: Many states offer additional tax deductions or credits for contributions to a 529 plan, further enhancing your savings. (New Jersey, New York, and Pennsylvania all offering varying tax benefits for 529 plans, depending on your income levels).
Flexible Use of Funds
529 plans were once limited to college expenses, but recent changes have expanded their flexibility:
- Funds can now be used for K-12 tuition (up to $10,000 per year).
- Up to $10,000 in student loan repayment per beneficiary (and another $10,000 for each sibling).
- Can be used for vocational and trade schools, not just traditional four-year colleges.
This broader coverage makes 529 plans more relevant for diverse educational paths.
High Contribution Limits
Unlike other tax-advantaged accounts, 529 plans allow very high contributions—often over $300,000 per beneficiary, depending on the state. You can also take advantage of a unique strategy called superfunding, which lets you contribute up to five years’ worth of the annual gift tax exclusion in one year (currently $95,000 for individuals or $190,000 for couples in 2025), without triggering gift taxes.
Minimal Impact on Financial Aid
529 plans are considered parental assets for federal financial aid purposes, which means they have a relatively small impact on a student’s eligibility for aid—typically reducing aid by no more than 5.64%* of the account’s value.
Portability and Control
The account owner remains in control, not the beneficiary—so the money can only be used with your approval. Also, beneficiaries can be changed to another qualifying family member without penalties.
Roll a 529 into a Roth IRA
You can now roll unused 529 plan funds into a Roth IRA for the beneficiary. This is a great new way to give beneficiaries a valuable head start on retirement savings. This rollover is tax-free and penalty-free, provided the 529 account has been open for at least 15 years. The lifetime rollover limit is $35,000 per beneficiary, and annual contributions must stay within Roth IRA limits. This new rule provides a safety net for families concerned about overfunding a 529 plan.
Low Maintenance and Investment Options
At Banyan Wealth, we will customize and build your 529 investment mix for you. We adjust the risk profile as the beneficiary approaches their target age so that in the beneficiary’s younger years they may strive for more growth in the portfolio but as they approach college age, we will become more conservative. We will focus on growth early and capital preservation later.
Final Thoughts
A 529 plan is more than just a college savings account—it’s a strategic financial tool that offers tax benefits, flexibility, and confidence. Whether your goal is to fully fund a four-year university education or simply offset student loan debt, starting early with a 529 plan can help you make the most of your money and support your loved one’s educational journey.
Contact Banyan Wealth today to discuss 529 Plans and start planning for a brighter educational future.
*savingforcollege.com/article/new-fafsa-removes-roadblocks-for-grandparent-529-plans
529 plans come with fees and expenses, and there is a risk they may lose money or underperform. Most states offer their own 529 programs, which may provide benefits exclusively for their residents. Please consider whether the state plan offers any tax or other benefits. Tax implications can vary significantly from state to state. State tax treatment of K-12 withdrawals is determined by the state(s) where the taxpayer files state income tax. Tax laws and provision may change at any time. Death of the contributor prior to the end of the five-year period may result in a portion of the contribution to be included in the contributor’s estate. For withdrawals made for non-qualified expenses, the deferred earnings portion may be subject to taxes and a 10% penalty. Unless certain criteria are met, Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Please consult a qualified tax professional to discuss tax matters.