SAVING FOR COLLEGE

A 529 plan is a tax-advantaged investment account designed to help families save for education expenses. Sponsored by states, state agencies, or educational institutions, these plans offer powerful tax benefits while giving savers flexibility in how funds are used.

How It Works - You contribute after-tax dollars into an investment account for a named beneficiary (often a child or grandchild). - Funds grow tax-free over time. - Withdrawals are also tax-free if used for qualified education expenses.

- No official annual IRS contribution cap, but contributions are considered gifts for tax purposes. - You can give up to $19,000 per year per beneficiary (2025) without triggering federal gift tax. - A special rule allows “5-year frontloading”: you can contribute up to $95,000 at once ($190,000 for couples) and treat it as spread over five years for gift tax purposes. - Lifetime contribution limits vary by state, generally ranging from $300,000 to over $500,000 per beneficiary.

-Many states offer tax benefits for contributions to a 529 plan. These benefits may include deducting contributions from state income tax or matching grants but may have various restrictions or requirements. In addition, savers may only be eligible for these benefits if you invest in a 529 plan sponsored by your state of residence.

What You Can Pay For - College & University Costs: Tuition, fees, books, supplies, equipment, and room & board (if enrolled at least half-time). - K–12 Tuition: Up to $10,000 per year for private, public, or religious schools.

-Starting in 2026, the K-12 tuition limit doubles to $20,000 per beneficiary annually. - Apprenticeships & Student Loans: Certain apprenticeship programs and up to $10,000 toward student loan repayment.

Investment Options 529 savings plans function like an investment portfolio: - Age-based portfolios (become more conservative as the student nears college). - Static portfolios (risk level remains constant). - Individual fund options (mutual funds, ETFs, or FDIC-insured savings). - Investments are not federally guaranteed and may gain or lose value.

Fees Plans may charge: - Enrollment and account maintenance fees - Program management fees - Investment expenses

Tax Benefits - Federal: Earnings and withdrawals are tax-free when used for qualified expenses. - State: Many states offer income tax deductions or credits for contributions (often only if you invest in your home state’s plan).

-One of the benefits of 529 plans is the tax-free earnings that grow over a period of time. The longer your money is invested, the more time it has to grow and the greater your tax benefits. You will lose some of these potential benefits if you withdraw money from a 529 plan account within a short period of time after it is contributed. -Non-qualified withdrawals = ordinary income tax on earnings + 10% penalty.

There will likely be restrictions on any 529 plan you may be considering. Before you invest in a 529 plan, you should read the plan’s offering circular to make sure that you understand and are comfortable with any plan restrictions.

Withdrawals. With limited exceptions, you can only withdraw money that you invest in an education savings plan for qualified higher education expenses or tuition for elementary or secondary schools without incurring taxes and penalties. Beneficiaries of prepaid tuition plans may only use their purchased credits or units at participating colleges or universities. If a beneficiary doesn’t attend a participating college or university, the prepaid tuition plan may pay less than if the beneficiary attended a participating college or university. It may only pay a small return on the original investment.

Investments. Education savings plans have certain pre-set investment options. It is not permitted to switch freely among the options. Under current tax law, an account holder is only permitted to change his or her investment option twice per year or when there is a change in the beneficiary.

529 accounts owned by parents count as a parental asset for FAFSA, which has only a modest impact on aid eligibility. In most cases, the long-term tax benefits outweigh the small reduction in aid.

Bottom Line A 529 savings plan is one of the most effective ways to save for education. It combines tax-free growth, flexible usage, high contribution limits, and state tax benefits, helping families reduce future debt while investing in education.