A 529 plan is a tax-advantaged savings account designed to help families save for education-related expenses. These plans are sponsored by individual states or educational institutions and can be used to pay for a wide range of qualified expenses, including college tuition, fees, room and board, books, and up to $10,000 per year for K–12 tuition. They can also cover costs for apprenticeship programs and up to $10,000 in student loan repayment. Anyone can contribute to a child’s 529 plan. In 2025, individuals can contribute up to $19,000 per year per beneficiary without triggering the federal gift tax, or $38,000 for married couples. A special rule allows contributors to supercharge a 529 by making five years’ worth of contributions in one year, up to $95,000 per individual or $190,000 per married couple, without using their lifetime gift tax exemption.
One of the key benefits of a 529 plan is tax-free growth and withdrawals for qualified education expenses. Many states also offer state income tax deductions or credits for contributions to their own 529 plans, though these benefits vary. Importantly, 529 plans differ by state in terms of fees, investment options, and tax benefits, so it’s worth comparing plans—even those outside your home state. Beginning in 2024, the IRS allows up to $35,000 in unused 529 funds to be rolled over into a Roth IRA for the beneficiary, provided the account has been open for at least 15 years and other requirements are met. However, if funds are used for non-qualified purposes, the earnings portion is subject to income tax and a 10% penalty.