FAQs
529 plans are considered assets of the account owner, which is often a parent. The 529 plan account owner may change the beneficiary or take a distribution at any time for any reason, whether or not it is in the best interest of the original beneficiary. In most cases, parents appreciate this flexibility.
What happens to a 529 account when the child turns 18? ›
In most states, that means age 18, though in some states the age threshold may be higher. The custodian can't change the beneficiary or account owner. Once the account owner/beneficiary becomes an adult, they assume control over the 529 plan.
How does a college savings account work? ›
Also known as 529 college savings plans, these are tax-advantaged investment accounts designed for education savings. They work much like a Roth 401(k) or Roth IRA by investing your after-tax contributions in mutual funds or similar investments. 529 plans offer several investment options from which to choose.
Can I put money in 529 and take it out right away? ›
Yes, you can withdraw from your 529 plan at any time. However, ensure you use your withdrawals for that year's qualified expenses.
What is the 529 loophole? ›
The grandparent loophole allows grandparents to use a 529 plan to fund a grandchild's education without affecting the student's financial aid eligibility. Previously, withdrawals could have reduced aid eligibility by up to 50% of the amount of the distribution.
Can I use my child's 529 for myself? ›
Your 529 can be used for student loan repayment up to a $10,000 lifetime limit per individual. Up to $10,000 annually can be used toward K-12 tuition (per student). You can transfer the funds to another eligible beneficiary, such as another child, a grandchild, yourself or a friend.
Can I convert my 529 to a Roth IRA? ›
As of January 1, 2024, owners of 529 plan accounts can make tax and penalty-free rollovers to Roth IRA retirement plan accounts, subject to certain limitations. This has been welcome news to many families who worried about having unused or leftover funds in a 529 plan account.
What is better than a 529 account? ›
Some 529 alternatives include using a custodial account, Roth IRA or Coverdell Education Savings Account.
What age is too late to start a 529 plan? ›
But, the reality is that many families get a late start on saving for college. Parents who open a 529 plan when their child is a high school freshman or later can still take advantage of the federal (and sometimes state) tax benefits, even if college is just a few years away.
What happens if my child doesn't use all of their 529? ›
What happens to unused 529 funds? Your 529 account will never expire, even if your child ends up not using it. You can leave the funds in the account, allowing investments to grow tax-deferred, and use the funds down the road for a grandchild or another qualified family member.
The rule is simple. Multiply your child's age by $2,000. That tells you how much you should have saved already at that specific age to be on track to cover 50 percent of college costs. For instance, if your child is seven years old, you would multiply $2,000 by seven and come up with $14,000.
What happens to 529 if kid doesn't go to college? ›
Leave the account intact.
If your child is simply not sure about college or perhaps wants to delay applying, you can keep your 529 plan intact until the child does use it for qualified education expenses.
What happens to a college savings account if not used? ›
The leftover 529 funds can't be used for other types of consumer loans (such as credit cards or personal loans). Roll the leftover 529 funds into a Roth IRA. Also new with the Secure 2.0 Act, you'll be able to roll a portion of the unused 529 funds into a Roth IRA.
Why don't 97% of people use 529 college savings plans? ›
It's easy to see why Americans don't embrace 529 plans. They often have limited investment options, high fees, complicated rules and anxiety-producing investment risks. All that said, the plans may ultimately be worthwhile for most families, as long as parents choose carefully. Focusing on fees is crucial.
Are 529 plans really worth it? ›
And when you pull the funds out, as long as they're used for qualified higher education expenses, there's no federal income tax on the distribution and often no state income tax. 529 accounts also receive some favorable treatment for financial aid purposes, so they're really a great way to save for college education.
What are the pros and cons of 529 plans? ›
Let's look at the pros and cons of 529 plans.
- Income tax benefits. When used for college or K-12 qualified expenses, earnings are not subject to federal income tax. ...
- Flexibility. ...
- Gift tax. ...
- 10% additional income tax. ...
- Ordinary income. ...
- Higher costs. ...
- Less flexibility in investments. ...
- No discount on gifts.