Project how much your 529 plan will grow and whether it'll cover your child's education costs.
A 529 plan is the most tax-efficient education savings container in U.S. law. Contributions grow free of federal tax, withdrawals for qualified education expenses are tax-free, many states layer a contribution deduction or credit on top, and unused balances can now be partially rolled to the beneficiary's Roth IRA. The catch — and there's always a catch — is committing to the education use case 15 to 20 years in advance, when the child is too young to weigh in on whether they'll actually want or need college.
A 529 plan, named after IRC section 529, is a state-sponsored education savings account. Two flavors exist: education savings plans (the common one — invest in mutual-fund portfolios, balance grows with markets) and prepaid tuition plans (lock in today's tuition rate at participating in-state schools). Each state sponsors at least one plan, but you can use any state's plan regardless of where you live — though you may give up the state tax deduction.
35 states plus DC offer income tax deductions or credits for 529 contributions. Typical deduction caps: $2,000 (Indiana, Michigan, Vermont single-filer) to $20,000+ (Connecticut, Illinois, Pennsylvania for joint filers). At a 5% state tax rate, a $10,000 deduction is worth $500 — a real, immediate return on top of the federal tax-free growth. Seven states (Arizona, Kansas, Maine, Missouri, Montana, Ohio, Pennsylvania) allow the deduction on contributions to ANY state's 529, not just their own.
Starting January 1, 2024, unused 529 funds can be rolled into the beneficiary's Roth IRA, subject to:
This change meaningfully reduces the "what if they don't go to college?" risk that historically made parents under-contribute. Up to $35K of unused 529 funds becomes a head start on retirement savings for the same child.
Parent-owned 529s are reported as parental assets on the FAFSA, assessed at a maximum 5.64% rate in the Student Aid Index calculation — far less impactful than student-owned assets (20% rate). Grandparent-owned 529s, which previously reduced aid eligibility dollar-for-dollar through student-income reporting, no longer affect financial aid under the simplified FAFSA introduced for the 2024-2025 academic year. This is a major planning shift that makes grandparent 529s strategically attractive again.
Yes — you can be both owner and beneficiary, useful for graduate school savings or career changes requiring additional certifications.
Withdraw up to the scholarship amount penalty-free (you still pay income tax on the earnings portion). The 10% penalty is waived but not the underlying tax.
Contributions count against the annual gift tax exclusion ($18,000 per donor per recipient in 2026). A special 5-year forward election allows lump-sum contributions of up to $90,000 ($180,000 for couples) treated as 5 years of gifts.
Yes, and since the FAFSA simplification their contributions no longer harm financial aid. They can be owners of separate 529s or contribute to the parent-owned 529.
This basic version uses fixed contributions; for growth-adjusted savings, increase your monthly amount by 3-4% per year manually or use the inflation-indexed retirement calculator.
Coverdell ESAs are limited to $2,000 per year in contributions and phase out at higher incomes — far less practical than 529s for substantial savings.
Educational only. Reviewed by Rachel Okonkwo, CFP®, on February 28, 2026.