As many families have already discovered, sending a loved one to college is typically not cheap. Everything from tuition to textbooks to living expenses can quickly add up. So, how can you prepare ahead of time for these costs? Enter the 529 college savings plan. The benefits of a 529 plan extend beyond simply saving for these future expenses, as you can enjoy state tax deductions from the contributions (depending on your state) and enjoy tax-advantaged growth in the long run as well. So, what is a 529 plan? What expenses can a 529 plan be used for? And, how do you choose the best 529 college savings plan for you? In this blog, we’ll break it all down—including the potential tax benefits you could enjoy through a 529 plan.
What is a 529 Plan?
529 college savings plans are state-sponsored plans that allow immediate family members, relatives, and even friends to invest in a person’s future education. As it currently stands, Wyoming is the only U.S. state that does not offer a 529 plan to its residents, however, most states will allow you to invest in a 529 plan even if you’re not a full-time resident. It is important to make sure you familiarize yourself with the state’s regulations before investing.
The Benefits of 529 Plans
From tax benefits to flexibility, there are a lot of great benefits investors could enjoy from 529 plans.
- Tax-Free Growth and Withdrawals: As your investments grow over time, they are free from federal taxes. As long as the funds are used for 529 qualified expenses, any withdrawals are also free from taxes. Additionally, if you are a grandparent or family friend, your contributions to a 529 plan could be made as tax-exempt gifts. This makes 529 plans a great part of estate planning, too, as they can help account holders begin to transfer inheritance money free of taxes.
- State Income Tax Breaks: While this benefit of 529 plans does not apply to residents of states that have no income tax, such as Texas or Nevada, you could be eligible for tax breaks up to a certain amount in others.
- Beneficiaries Can Change: Another great benefit of 529 plans is that they can be used for more than one child. If you are concerned that you are overfunding your first child’s 529 plan, don’t worry. Leftover funds can be transferred to your next child’s 529 plan.
- Not Just for College: One of the best benefits of 529 plans is that they can be used for more than just a college education. They could also be used for expenses for private primary and secondary schooling. Under the One Big Beautiful Bill Act (OB3), expenses for recognized postsecondary credential programs are now allowed as well.
- Roth IRA Rollover: Thanks to regulation changes, unused 529 funds could even be rolled over to your existing Roth IRA investment account. The current lifetime limit is $35,000. We’ll further discuss the new rules later in this blog.
Choosing the Best 529 College Savings Plan
There are two types of 529 plans. When calculating your college savings plan, there are a few factors to consider, including where your loved one may attend school.
The first plan is your standard college savings plan. Through this version of a 529, you’ll open an account that can be put towards educational expenses when the time comes. Examples of 529 qualifying expenses are up to $20,000 in annual tuition for K-12 schools beginning 1/1/2026 per OB3, textbooks, meal plans, and more.
"A 529 plan offers more flexibility than many realize when it comes to covering higher education expenses," shared Aron Riddle, CFP®. "In addition to tuition, books, and fees, these plans can also be used for essential electronics like laptops and in some cases even smartphones. Plus, they extend to general living expenses, including off-campus housing costs like rent, utilities, and meal plans or groceries."
The second type of plan is called a prepaid 529 plan. If you know your loved one will attend school in a specific state, you may be able to buy pieces of their tuition at today’s prices. For example, if you know your child wants to attend the University of Florida, you could pay for today’s tuition prices rather than the likely inflated ones when your child attends college.
Georgia’s Current 529 Plan Rules
For readers in Georgia, the Path2College 529 plan is a potential route you could take for state tax benefits. So, what are Georgia’s 529 plan funding limits? Through Path2College, contributions up to $4,000 per year, per beneficiary, are eligible for tax deductions for those filing a single return ($8,000 for those filing jointly).
“So, here in the state of Georgia, there's some really nice tax benefits, and it's a good plan. It's got good investment options and low costs, so it's a really great solution for folks who are saving towards higher education,” stated Aron.
According to the Office of the State Treasurer, “The program offers seven investment options, including two managed age-based funds, a 100% equity fund, a balanced fund, a 100% fixed-income option, a money market option, and a guaranteed option. Accounts may be opened with as little as $25. Georgia state employees may also contribute through payroll deduction with as little as $15 per pay period.”
Another big benefit of 529 plans is that you can begin funding as soon as your first child is born. The more you can invest early in their life, the longer returns can compound by the time they're ready for school.
Rolling Your 529 Plan Over to a Roth IRA
Do you have unused funds in your 529 plan? Through the Secure 2.0 Act, you could roll those over to an existing Roth IRA for the current beneficiary. However, this can not be done at any time or in any amount.
The rules for moving a 529 to a Roth IRA are as follows:
- The lifetime limit for rolling over funds is $35,000.
- The 529 account must have been open for a minimum of 15 years.
- Contributions and earnings over the past five years are not eligible for rollover.
- The rollover must also adhere to the yearly Roth IRA limits.
Plan for Their Next Chapter with BIP Wealth
Looking to ensure a bright future for your loved one without unnecessary financial stress? BIP Wealth’s experienced advisors help families plan for their child’s education with strategic 529 plans and college funds. We’ll help you unlock the benefits of 529 plans with a strategy that is right for your financial needs and goals. For more information, contact our team.
FAQs
Are contributions to 529 plans tax deductible?
529 are tax deductible for most states. These plans are not exempt from federal taxes, however.
What is a 529 plan?
A 529 plan is an investment account that can be used to pay for 529 qualified expenses such as tuition, room & board, and textbooks. One of the benefits of 529 plans is that they can be tax deductible at the state level.
How do I open a 529 college savings plan?
Any parent, grandparent, or family friend can open a 529 college savings account on behalf of their loved one. This can be done at a brokerage or financial institution.
How do I choose a 529 college savings plan?
To choose the best 529 college savings plan, decide if you’d rather invest in pieces of tuition now with a prepaid option or go the more traditional investment route with a standard 529 plan.
BIP Wealth, LLC (“BIP Wealth”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). Registration with the SEC as a registered investment adviser does not imply a certain level of skill or training. For more information about BIP Wealth, please refer to our Form ADV, available at adviserinfo.sec.gov or upon request.
This blog is intended for informational purposes only and does not constitute tax advice. Specific investments may not be suitable for all investors and no offer or recommendation of any investment or investing strategy is intended or implied by your choosing to read this blog. Please consult your personal tax professional before making any tax-related decisions.
