Question 1

How much should I save in a 529 plan?

Accepted Answer

A common target is to save enough to cover one-third of projected college costs, with financial aid and student earnings covering the rest. For a 4-year in-state public university projected to cost $140,000 in 18 years (at 5% annual cost inflation from today's $60,000), saving approximately $400–$500/month from birth would fully fund the goal. For a private university projected at $350,000+, $900–$1,100/month would be needed. Starting early dramatically reduces the required monthly contribution — a 5-year head start can cut the monthly amount needed by 30–40%.

Question 2

What are the tax advantages of a 529 plan?

Accepted Answer

529 plan contributions grow tax-free, and withdrawals for qualified education expenses — tuition, room and board, books, and required equipment — are completely tax-free at the federal level. Additionally, 30+ states offer a state income tax deduction or credit for 529 contributions, typically on amounts up to $5,000–$10,000 per year. Unlike Coverdell ESAs, 529 plans have no annual contribution limit (though contributions above $18,000/year per person may have gift tax implications), and the account can be superfunded with a lump sum of up to $90,000 per beneficiary using 5-year gift tax averaging.

Question 3

What happens to a 529 if my child does not go to college?

Accepted Answer

If your child does not attend college or does not use all the funds, you have several options: change the beneficiary to another family member (siblings, cousins, yourself) at no cost; use the funds for K–12 private school tuition (up to $10,000/year); use them for registered apprenticeship programs or student loan repayment (up to $10,000 lifetime); or starting in 2024, roll unused 529 funds into a Roth IRA for the beneficiary (subject to limits and a 15-year waiting period). Non-qualified withdrawals are subject to income tax plus a 10% penalty on the earnings portion only — contributions come out tax and penalty free.

Question 4

Is a 529 plan worth it?

Accepted Answer

529 plans are worth it for most families who are confident the funds will be used for education. The tax-free growth and state tax deduction make them the most tax-efficient college savings vehicle available. The main risk is over-funding — saving more than needed and facing penalties on non-qualified withdrawals — but the expanded uses introduced by the SECURE 2.0 Act (Roth rollovers, apprenticeships, student loan repayment) significantly reduce this concern. The primary alternative, a taxable brokerage account, has no contribution restrictions but lacks the tax-free growth benefit.

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