Understanding 529 Savings Plans: A Smart Tax‑Advantaged Strategy for Education Costs

Planning for education expenses—whether for a child, grandchild, or even yourself—can feel overwhelming. Fortunately, 529 college savings plans offer one of the most powerful tax‑advantaged ways to prepare for future education costs. As your trusted tax advisor, we're here to break down how these plans work and how to maximize their benefits.

The Basics of 529 Savings Plans

A 529 plan allows anyone to open an education savings account for a current or future student, as long as the account owner is a U.S. resident, age 18 or older, with a valid tax ID. Contributions are made with after‑tax dollars, but the earnings grow tax‑free—and withdrawals are also tax‑free when used for qualified education expenses.

While each account has a designated beneficiary, the account holder retains full control of the funds. Better yet, you can open a plan in any state—regardless of where you live. Some states even offer tax deductions or credits on contributions.

Contribution limits: Annual contributions follow federal gift tax rules. For 2025, individuals may contribute up to $19,000 per beneficiary (or $38,000 for married couples). Many states also offer generous total contribution limits.

What 529 Funds Can Cover

529 plans are incredibly flexible and can be used for far more than traditional college expenses. Qualified uses include:

• K–12 tuition (up to $10,000 per year)
• College tuition and fees
• Room and board
• Books, supplies, and equipment
• Computers and internet access
• Registered apprenticeship programs
• Up to $10,000 toward student loan repayments (lifetime limit)

Smart Tips to Make the Most of a 529 Plan

Start Early

The earlier you begin contributing, the more time your investments have to grow tax‑free. Even small contributions can make a big difference over time.

Anyone Can Open the Account

Parents, grandparents, relatives, or family friends can all open and contribute to a 529 plan. The beneficiary can be changed later if needed.

Compare State Plans

Not all 529 plans are the same. Some offer better investment options, lower fees, or state tax benefits. Review several state programs before choosing one.

Rollover Unused Funds

If the beneficiary doesn’t need all the funds, you can transfer the remaining balance to another qualifying family member. Eligible recipients include siblings, cousins, parents, nieces/nephews, and even the account holder.

Take Advantage of Expanded Uses

529 plans aren’t just for college anymore. K–12 tuition, apprenticeships, and student loan repayments all qualify, making these accounts more valuable than ever.

No Age Limits

There’s no age cap for contributions, and adults returning to school can use 529 funds for their own education. However, once the account reaches your state’s maximum balance, additional contributions may be restricted.

Consider Superfunding

The IRS allows a special election to contribute up to five years’ worth of gifts at once—known as “superfunding.” This strategy can significantly grow educational savings but must be handled carefully to avoid tax complications. Professional guidance is recommended.

Start Planning for Education With Confidence

529 plans offer tremendous tax advantages and flexibility, making them an excellent tool in your long‑term financial plan. Whether you're a parent, grandparent, or someone who wants to give the gift of education, now is the perfect time to explore your options.

Cohn, Lopez & Associates provides expert tax planning, financial guidance, and personalized advice to help you choose and maximize the right education savings strategy.

Reach out anytime for help creating a plan that supports your family’s educational goals.