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FAQ: 529 Plans

May 13, 2022

529 plans are one of the best options for education funds as they cover almost every type of education and cover a broad range of expenses. If you have a loved one who needs help paying for their education, consider creating a 529 plan for them.

What is a 529 plan?

Also known as a “qualified tuition program,” a 529 plan allows you to save for higher education expenses for a designated beneficiary. 

A 529 plan is provided by a state, an agency of the state, or by an educational institution itself.

Money invested in the plan accumulates on a tax-deferred basis. Distributions used for higher education expenses are tax and penalty-free as long as the funds are used for approved education expenses. 

Who can contribute to a 529 plan?

Anyone—whether they’re a family member or friend—can establish a 529 plan for a beneficiary.

How can they use the funds?

Unlike other types of education savings accounts, 529 plans funds can cover almost any educational expense. This includes all grades from kindergarten through post-graduate and apprenticeships.

Funds from a 529 plan can also go towards expenses outside of tuition, like room and board.

What are the benefits of 529 plans?

  • It doesn't affect eligibility for financial aid

  • The money added to a 529 account grows tax-free when used for qualifying educational expenses

  • Depending on the state you live in, you can get a tax break for the contributions you make

  • The funds are transferable to other beneficiaries

Is there a benefit to having a Grandparent as the custodian of a 529 plan account?

The benefit of a grandparent as the custodian is that this 529 plan is not included in an application for federally funded financial aid. 

Are 529 plan funds transferable between siblings?

Yes. They are also transferable to nieces, nephews, grandkids, spouse.. any eligible family member. You can even use the funds on your own continuing education.

What happens if you don’t use your 529 money?

You can transfer it to another beneficiary to use on educational expenses. If you withdraw for non-qualified expenses, you incur income tax + 10% penalty on the earnings.

Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer’s official statement and should be read carefully before investing.

Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state's 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state's 529 Plan.