Frequently Asked Questions
What can 529 funds be used for?
Qualified expenses: tuition, fees, books, supplies, equipment, room and board (half-time or more), computers/internet. K-12 tuition up to $10k/year. Student loan repayment up to $10k lifetime. Apprenticeship programs. Not for: transportation, insurance, sports/clubs, or expenses already covered by tax-free scholarships.
What if my child doesn't go to college?
Options: 1) Change beneficiary to another family member (sibling, cousin, yourself for grad school), 2) Use for vocational/trade school, 3) Save for potential future education, 4) Withdraw with penalty (earnings taxed + 10% penalty on earnings only, contributions always tax-free). Many options before taking penalty.
Which state 529 plan should I use?
If your state offers tax deductions/credits for contributions, use that plan to capture the benefit. If no state tax benefit (TX, FL, WA, etc.) or high-income (already get no state benefit), choose based on: low fees, good investment options, age-based portfolios. Popular: Utah, Nevada, New York, California plans.
How much should I save in a 529?
Aim to cover 1/3 to 1/2 of projected costs through 529 (rest from current income, scholarships, student loans, work-study). Saving full cost often overfunds—student may get scholarships or choose less expensive school. Projected 4-year public in-state 2038 cost: ~$180k-250k; private: ~$350k-500k.
Can I lose money in a 529?
Yes, if investments decline. Choose age-based portfolios that automatically become more conservative as college approaches—reducing risk when you need the money. Or manually adjust allocation. Near college, should be mostly cash/bonds, not stocks. Historical 529 returns average 5-7% over long term.
How does 529 affect financial aid?
Parent-owned 529s count as parental asset (5.64% assessment rate in FAFSA formula). Student-owned count as student asset (20% rate)—generally avoid. Grandparent-owned 529s didn't count as asset but distributions counted as student income (50% rate). 2024 FAFSA changes improved this—grandparent distributions no longer hurt aid significantly.
Should I save in 529 or Roth IRA for college?
529: Better for dedicated college savings, higher contribution limits, possible state tax deduction, no impact on retirement savings. Roth IRA: More flexible (retirement if unused), but using for college hurts retirement. Best strategy: Max Roth IRA for retirement first, then 529 for college. Don't sacrifice retirement for college savings.
Can I use 529 for private K-12?
Yes, up to $10,000 per year for K-12 tuition at private, public, or religious schools (federal law). However, state tax benefits vary—some states treat K-12 withdrawals as non-qualified. Check your state rules. Also, using for K-12 reduces funds available for college.
What are the contribution limits?
No annual federal limit, but contributions over $18k/year (2024 gift limit) may trigger gift tax considerations. You can "superfund"—contribute 5 years of gift exclusion at once ($85k single, $170k married) with no gift tax. Aggregate limits vary by state (typically $300k-$550k per beneficiary).
What fees should I watch for?
Look for: program management fees (0.10%-0.50%), fund expense ratios (0.05%-0.75%), and account maintenance fees (often waived with automatic investing or higher balances). Low-cost direct-sold plans typically 0.15%-0.50% total. Broker-sold plans may add 1-5% loads—avoid these.
What if I have multiple children?
Open separate 529 for each to track individually. Can change beneficiary between siblings with no penalty. If age gap is small, consider aggressive growth for younger one. If large gap, fund older child's plan first, then redirect to younger after older starts college.
Is a 529 worth it if my child might get scholarships?
Yes. Scholarships reduce need, but 529 funds can still cover room/board, books, computers—often not covered by scholarships. Plus, 529 allows penalty-free withdrawal of scholarship amount (earnings taxed but no 10% penalty). It's insurance—you'd rather have it and not need full amount than need it and not have it.