If you have a child in middle school or high school and you haven't saved any money for college, you might wonder if it's too late to open a 529 account in 2024. The good news is: It's not too late!
No matter what age your child is or how much money you've saved for college, there is almost always an opportunity to improve your situation by opening a 529 account. And depending on where you live, you might even get a tax deduction on your state income taxes.
Let's look at why it's a good idea to open a 529 college savings account for your child -- at any age, with any amount of money in the bank.
529 college savings accounts: Not just for babies
So often with 529 college savings plans, the advertising features babies and young children. As if every new parent is supposed to have thousands of dollars lying around to set up a college savings fund. Lots of people are living paycheck to paycheck, and the median American savings account is only $1,200. If you feel like you can't afford to save for college, you're not alone.
Saving for college can be especially difficult during the early years of parenthood, when you might be paying for extra expenses like child care. Young parents who are just getting started in their careers can also struggle to save; if you're at a stage of life where you're not making much money, it's hard to save for retirement -- let alone for college.
But sometimes, just as children grow up and get better at taking care of themselves, parents' personal finances get better. You might be able to start saving more money after your children get old enough to be out of daycare and in full-time school. Your career prospects might improve. You could get pay raises and promotions, get a better job or switch to a better-paying field, or start side hustles or a small business. Just because you can't afford to save for college when your child is 2 years old doesn't mean you'll still be in the same situation 10 years later.
For all these reasons, it's important to keep in mind that it's almost never too late to open a 529 plan, even if your child is 10 years old, 12 years old, or already in high school. You still have time to make a meaningful difference in helping pay for your child's future college costs.
How much you can save for college for a high school freshman
Let's say you have a child who is a freshman in high school and you haven't saved any money for college so far. You open a 529 plan and save $300 per month for the next four years. Let's assume you invest your 529 savings in a diversified portfolio of stocks and bonds that deliver an average return of 6% per year. After four years, you'd have $16,694 saved for college.
How saving for college can reduce your state income taxes
Putting money into 529 savings plans is not the same as a 401(k) or traditional IRA -- the contributions do not give you a deduction on your federal income taxes. But if you live in a state with income taxes, some of those states offer a tax deduction for 529 contributions. Check the rules for your specific state; for example, contributing to California's 529 plan does not provide any state tax deduction.
In my home state of Iowa, parents (or other 529 account owners, like grandparents) can deduct 529 contributions of up to $4,028 from their Iowa adjusted gross income for 2024, per beneficiary account. That means an Iowa family with two parents and two children could save a total of $16,112 for their two kids' college funds in 2024 ($4,028 per parent, per child) and deduct that full amount on their Iowa state income tax return.
This state income tax advantage makes it even more worth it to save for college, even if you got a late start.
Ready to catch up on college savings? Start here
If you want to know where to get started with a 529 plan, check out CollegeSavings.org, a website from the National Association of State Treasurers. This site has details on what you need to know about 529 plans, and its Find My State's 529 Plan tool will help you find the right 529 program for your state.
Some states will only let you invest in 529 plans directly through the state's program (called "direct-sold" savings plans); using your state's direct-sold plan is often the best option, especially if you want low fees and state income tax deductions. Other states also let you invest in 529 plans through a financial advisor or brokerage. Many leading brokerages offer 529 accounts, including Schwab, Vanguard, and Fidelity, to help families save and invest for college.
Bottom line
Kids grow up too fast, and the future costs of college can feel overwhelming. But if your child is still in school, it's not too late to open a 529 plan. Even if you only have a few years left before your child graduates from high school, you still have time to save and invest for college. And you might get a break on your state income taxes, too!
FAQs
… But it's never too late
How late is too late to open a 529? ›
Myth: It's too late to open an account. My child is already in high school. Reality: It's best to start early, but it's never too late to open a 529 education savings account.
What are the new 529 rules for 2024? ›
Beneficiaries are allowed to roll over up to $35,000 over their lifetime into a Roth IRA in their name (not the original 529 account holder's name). This limit is subject to the annual Roth IRA contribution limit, which is $7,000 in 2024. The 529 account must have been open for more than 15 years.
Is it a good time to open a 529 plan? ›
How Our 529 Plan Works. No matter your child's age, the best time to open a ScholarShare 529 is today. Because the sooner you start, the more you can take advantage of compound earnings and powerful tax benefits.
How much is $100 a month in a 529 for 18 years? ›
This chart shows that a monthly contribution of $100 will compound more if you start saving earlier, giving the money more time to grow. If you save $100 a month for 18 years, your ending balance could be $35,400. If you save $100 a month for 9 years, your ending balance could be about $13,900.
What is the cut off time for a 529 plan? ›
529 college savings plans do not have contribution deadlines. You may contribute to a 529 plan at any time throughout the year, and you do not have to stop making contributions once the beneficiary reaches a certain age.
Can you start a 529 at any time? ›
529 fact. An account can be opened in anyone's name (like a parent, grandparent, or family friend), at any time (even before a child is born) and easily transferred later.
What is the 5 year rule for 529 plans? ›
Put time on your side with accelerated gifting
However, special 529 rules allow you to use five years of annual exclusions at once for a tax-free gift of up to $85,000 (joint taxpayers may fund $170,000).
Can I roll my 529 into a Roth? ›
Under certain conditions, you can roll over tax- and penalty-free up to a lifetime limit of $35,000 in a 529 to a Roth IRA open by the 529 beneficiary for more than 15 years, subject to annual Roth IRA contribution limits. (Note: The annual contribution limit would be the beneficiary's, not the parents'.)
Do I need separate 529 for each kid? ›
How Many 529 Plans Do You Need? Technically, you could have just one 529 plan for all of your children, says Taylor Jessee, founder of Impact Financial in Henrico, Virginia. There is, however, one very important rule to know about how these plans work. “A 529 plan can only have one beneficiary,” Jessee says.
Brokerage Accounts
Compared to 529 plans, brokerage accounts offer complete flexibility in investment options. You can diversify your investments across Roth IRAs, HYSAs, mutual funds, stocks, bonds, and more through a single account.
What is the downside of 529 accounts? ›
If you use distributions from your 529 account to cover anything other than education costs, you will face a penalty. You will be able to withdraw your money from the account but will be responsible for income taxes on the earnings – federal, state, and county if applicable – as well as a 10% penalty fee.
How much should I put in my child's 529 per month? ›
Depending on how early you start, this might look like $400 or $700 in monthly 529 contributions. You should also consider inflation in your projections, but a strong 529 plan takes care of that return. Of course, consider costs for accommodation and residence if your child attends an out-of-state school.
How much does the average person save for college with a 529 plan? ›
Nationwide, 529 Plan savings totaled $450.5 billion in June 2023 for an average account balance of $27,741. The average account balance in mid-2023 was 9.50% lower than the all-time high average balance of $30,652 in 2021.
What happens to 529 if child doesn't go to college? ›
If your child decides not to attend college, the funds can be used at any eligible educational institution offering higher education beyond high school, including some overseas, trade or vocational schools eligible to participate in a student aid program run by the U.S. Department of Education.
Can 529 be used for room and board? ›
You can use a 529 plan to pay for qualified room and board expenses like rent, other housing costs, and meal plans. This applies to on-campus and off-campus room and board as long as you incurred the costs while the beneficiary was enrolled at school.
Can 529 plans be opened after 30? ›
There are no time or age limits on using a state 529 college savings plan. Money can be kept in a 529 plan indefinitely. 529 plans can be used for graduate school, not just undergraduate school, and can be passed on to one's children. There is also no age limit on contributions to a 529 plan.
How late can you contribute to 529? ›
How late can I contribute to a 529 plan? In most states, you should contribute to your 529 college savings plan by the end of the year, i.e., December 31, to maximize any state tax breaks associated with those contributions. But in other states, you can contribute until that state's tax filing deadline next year.
Is it too late to start saving for my child's college? ›
… But it's never too late
The dollars you save won't have as much time to grow, but they're still dollars you won't be borrowing. If you choose an account that gives you tax benefits—whether it's immediate tax deductions or tax-free withdrawals—you'll be in an even better position.
What is the 30 year rule for 529 plans? ›
You have a generous time limit. Use the account assets within 30 years after the beneficiary graduates from high school or within 30 years after opening the account, whichever comes later. Or, if you think there might be unused 529 savings plan funds, designate a new beneficiary.
