A 529 plan lets savings for education grow tax-free. Recent laws made the accounts far more flexible than many families realize.
Key numbers
- Earnings in a 529 plan grow tax-free, and withdrawals for qualified education expenses aren’t taxed.
- From 2026, up to $20,000 a year per student can be used for K-12 expenses, up from $10,000.
- Costs of recognized postsecondary credential programs now qualify too.
- Unused money can be rolled into the beneficiary’s Roth IRA, up to $35,000 over a lifetime, if the account is at least 15 years old.
A 529 plan is a tax-advantaged savings account for education, named after the section of the tax code that created it. States sponsor the plans, and anyone can open one for a child, a grandchild or themselves.
The tax deal
- Contributions aren’t deductible on your federal return, but many states offer a deduction or credit.
- Growth isn’t taxed while the money is invested.
- Withdrawals for qualified education expenses are tax-free.
What counts as a qualified expense
| Expense | Covered? |
|---|---|
| College tuition, fees, books, supplies and equipment | Yes |
| College housing and food, for students enrolled at least half time | Yes, up to the school’s cost of attendance allowance |
| Computers and internet access used for school | Yes |
| Apprenticeship program costs | Yes, for registered programs |
| Recognized postsecondary credential programs, such as many licensing and certification programs | Yes, since July 2025 |
| K-12 tuition and related expenses | Up to $10,000 a year through 2025; $20,000 a year from 2026 |
| Student loan repayment | Up to $10,000 lifetime per person |
The 2025 tax law also broadened what K-12 money can pay for, adding costs such as curriculum materials, books, tutoring, standardized test fees, dual enrollment and certain educational therapies for students with disabilities.
Rolling leftovers into a Roth IRA
Since 2024, unused 529 money can be rolled into a Roth IRA for the beneficiary, up to $35,000 over a lifetime. The account must have been open at least 15 years, contributions from the last five years can’t be rolled over, and each year’s rollover counts against the beneficiary’s annual Roth IRA contribution limit.
529 plans and financial aid
On the FAFSA, a 529 owned by a parent counts as a parent asset, which has a relatively small effect on aid. Under the new FAFSA, money from a grandparent-owned 529 no longer counts as student income. Some colleges’ own aid forms treat 529s differently, so ask.
Money tip
Coordinate withdrawals with tax credits. You can’t use the same expenses for a tax-free 529 withdrawal and the American Opportunity credit, so many families pay the first $4,000 of tuition from other money and use the 529 for the rest.
Saving is only one part of the plan; if you’ll still need to borrow, know the new federal loan limits before your student starts.
Questions families ask
What happens if my child doesn’t go to college?
You can change the beneficiary to another family member, use it for trade or credential programs, roll some into a Roth IRA, or withdraw it. Non-qualified withdrawals owe income tax plus a 10% penalty on the earnings only.
Do I have to use my own state’s plan?
No. You can open a plan from any state, but many states give a tax deduction or credit only for contributions to their own plan.
Can a 529 pay off student loans?
Yes, up to $10,000 over a lifetime for the beneficiary, and another $10,000 for each of the beneficiary’s siblings.
Award amounts, loan limits and tax rules change, and some 2026 rules are still being finalized. This guide is general information for U.S. students and families, not financial or tax advice; confirm details at StudentAid.gov, with the IRS or with your school’s financial aid office.
