As 529 Day (May 29) approaches, it’s a timely reminder to take stock of how education savings plans, specifically 529 plans, fit into your broader financial strategy. With college costs climbing, tax benefits evolving, and new legislative changes expanding how these accounts can be used, there’s never been a better moment to revisit your approach.

Whether you’re saving for your child, a grandchild, or even yourself, understanding the power of a 529 plan can pay dividends.

What Is a 529 Plan?

A 529 plan is a tax-advantaged investment account designed to help families save for education expenses. Named after Section 529 of the Internal Revenue Code, these plans are typically sponsored by individual states and come with federal tax-free growth and tax-free withdrawals when used for qualified expenses.

Key benefits include:

• Tax-free growth
• State tax deductions or credits (in many states)
• Flexible usage for a wide range of education-related costs

Should You Use Your State’s 529 Plan?

If you live in a state that offers state income tax deductions or credits, contributing to your home state’s 529 plan might be a smart move. However, not all states offer these incentives. For example, California doesn’t provide a state tax break, so residents may want to shop around for low-fee, high-performing plans from other states.

Things to compare:

• Fees and fund performance
• Investment options
• Plan ratings and ease of use
• State tax benefits (if applicable)

How Much Should You Contribute to a 529 Plan?

Start by working backward from your education savings goal. A good rule of thumb: aim to cover about 50% of expected college costs through a 529 plan. The other half may be filled in by scholarships, financial aid, part-time work, or student loans.

Key factors to consider:

• Private vs. public college costs
• Number of children or beneficiaries
• Time horizon for investment growth

Lump Sum vs. Monthly Contributions: Which Strategy Wins?

If you’re able to make a lump sum contribution, the funds have more time to compound. For example, in 2025, you can front-load five years of contributions (up to $95,000 per beneficiary) without triggering gift tax implications, thanks to the IRS’s 5-year election rule.

But be mindful: lump sum investing can tie up capital, and if the funds are withdrawn for non-qualified expenses, earnings are subject to income tax and a 10% penalty.

For most families, monthly contributions (dollar-cost averaging) offer flexibility and reduce the risk of market timing.

What If Your Child Doesn’t Go to College?

• Change the beneficiary to another qualifying family member
• Use up to $10,000 per year for K-12 tuition
• Repay student loans, up to a $10,000 lifetime limit per beneficiary
• Roll unused funds into a Roth IRA (up to $35,000, starting in 2024, with limitations)
• Withdraw the funds—just know that non-qualified withdrawals face tax on earnings plus a 10% penalty

What Should You Do During Market Volatility?

Don’t panic. If your child is still several years away from college, time is on your side. Market downturns can be opportunities in disguise.

Tips for staying on track:

• Stick with age-based portfolios, they automatically reduce risk as your child nears college
• Continue contributions during down markets to take advantage of lower prices
• Review your investment allocation periodically to ensure it aligns with your time horizon

Final Thoughts for 529 Day

529 Day is more than just a quirky date on the calendar, it’s a reminder to plan smarter for the future. With new rules allowing Roth IRA rollovers and expanded usage for student loan repayment and K-12 tuition, 529 plans offer more versatility than ever.

As with any financial tool, the key is personalization. Work with your advisor to integrate 529 strategies into your overall plan, make use of tax breaks where available, and regularly revisit your contributions and allocations.

529 Plan FAQ: Your Top Questions Answered

What is a 529 plan used for?

A 529 plan can be used for qualified education expenses including tuition, fees, books, and room and board at eligible institutions. It can also be used for K-12 tuition (up to $10,000/year), student loan repayment, and apprenticeships.

Can I use a 529 plan for private K-12 education?

Yes. Up to $10,000 per year per beneficiary can be used for tuition at elementary or secondary public, private, or religious schools.

What happens to unused 529 funds?

You can change the beneficiary, use them for other qualifying educational purposes, roll them into a Roth IRA (if eligible), or withdraw them (subject to taxes and penalties).

Is there a penalty for not using 529 funds?

Yes. Non-qualified withdrawals are subject to income taxes on the earnings and a 10% penalty.

Can grandparents open a 529 plan?

Absolutely. Grandparents can open and fund 529 plans for their grandchildren and may even benefit from state tax deductions depending on the plan.

Are 529 plans only for college?

Not anymore. In addition to college, 529 funds can now be used for K-12 tuition, student loans, apprenticeships, and Roth IRA rollovers (subject to rules).

Is there a limit on how much I can contribute to a 529?

There’s no annual contribution limit, but contributions are considered gifts and subject to IRS gift tax rules. For 2025, the annual exclusion is $19,000 per donor per beneficiary—or $95,000 using the 5-year gift front-loading rule.

Do 529 plans affect financial aid?

Yes, but usually only slightly. 529 accounts owned by a parent are considered parental assets on the FAFSA and have a relatively low impact on aid eligibility.