What is a 529 Plan?
A 529 Plan is a convenient, versatile and tax-advantaged way to save and invest for a child’s or grandchild’s education. Some key benefits include:
- Tax-deferred growth on contributions*
- Account owner retains full investment control and can decide how and when funds are used
- Tax-free withdrawals as long as savings are used for qualified educational expenses1
- No income or age restrictions on your ability to make contributions or take distributions
- Not just for college funding (up to $10,000 per year per beneficiary can be used to help pay for tuition in elementary or secondary public, private, and religious schools or apprenticeship programs)
*You can make annual after-tax contributions of up to $19,000 ($38,000 for married couples electing to split gifts) to 529 Plan accounts for as many children or grandchildren as you want without incurring any federal gift taxes.2
When the time comes to make withdrawals, they are free from any federal (and possibly state and/or local) income taxes as long as the funds are used for qualified higher education expenses such as tuition, fees, room, board, books, required supplies and equipment.1
529 Plan tax benefits
In addition to tax-free growth and tax-free withdrawals, 529 Plan accounts can deliver additional benefits, including:
529 Plan to Roth IRA rollover
What happens if you fund a 529 Savings Plan account and the beneficiary has unused funds left over?
Recent changes now allow you to make tax-free transfers of 529 Plan funds to a Roth IRA for the same beneficiary ― giving them a head start on saving for their retirement. There are, however, some eligibility criteria:
- The 529 account must have been open for at least 15 years.
- Annual rollovers are subject to yearly IRA contribution limits ― minus any other IRA contributions that have already been made.
- There’s a lifetime aggregate rollover limit of $35,000 per beneficiary.
- Rollovers can’t include any contributions (or earnings) made in the last 5 years.
Is a 529 Plan right for me?
We can work with you to understand your family's education needs, including the type of school your child wants to attend and how much you're able to save, to design a strategy that gets you on track. For more detailed information and a list of qualified expenses, download our 529 Plan brochure and education plan comparison grid:
Not sure how much you’ll need to save? Let our college savings calculator help:
Frequently Asked Questions
Consider using them to fund a 529 Savings Plan for one or more of your grandchildren.
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Before your client invests in a 529 plan, they should be provided the plan’s official statement and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the 529 plan, which they should carefully consider before investing. They should also consider whether their home state or their beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds and protection from creditors that are only available for investments in such state’s 529 plan. 529 plans are not guaranteed by any state or federal agency.
Merrill, its affiliates, and financial advisors, do not provide legal, tax or accounting advice. Your client should consult their legal and/or tax advisors before making any financial decisions.
1 To be eligible for favorable tax treatment afforded to the earnings portion of a withdrawal from a 529 account, such withdrawal must be used for "qualified higher education expenses," as defined in the Internal Revenue Code. The earnings portion of a withdrawal that is not used for such expenses is subject to federal income tax and may be subject to a 10% additional federal tax, as well as applicable state and local income taxes. The additional tax is waived under certain circumstances. The beneficiary must be attending an eligible educational institution at least half time for room and board to be considered a qualified higher education expense, subject to limitations. Institutions must be eligible to participate in federal student financial aid programs. Some foreign institutions are eligible. You can also take a federal income tax-free distribution from a 529 account of up to $10,000 per calendar year per beneficiary from all 529 accounts to help pay for tuition at an elementary or secondary public, private or religious school. Qualified higher education expenses now include expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act and amounts paid as principal or interest on any qualified education loans of the designated beneficiary or sibling of the designated beneficiary, up to a lifetime maximum of $10,000 per individual. Distributions with respect to the loans of a sibling of the designated beneficiary will count towards the lifetime limit of the sibling, not the designated beneficiary. Such repayments may impact student loan interest deductibility. State tax treatment may vary for distributions to pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school, apprenticeship expenses, and payment of qualified education loans.
2 Contributions during 2025 between $19,000 and $95,000 ($38,000 and $190,000 for married couples electing to split gifts) made in one year can be prorated over a five-year period without subjecting you to gift tax or reducing your federal unified estate and gift tax credit. If you contribute less than the $95,000 ($190,000 for married couples electing to split gifts) maximum, additional contributions can be made during the five-year period without you being subject to federal gift tax, up to a prorated level of $19,000 ($38,000 for married couples electing to split gifts) per year. Gift taxation may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given beneficiary in the year of contribution. For contributions between $19,000 and $95,000 ($38,000 and $190,000 for married couples electing to split gifts) made in one year, if the account owner dies before the end of the five-year period, a prorated portion of the contribution may be included in their estate for estate tax purposes.
3 “Trends in College Pricing and Student Aid 2024,” College Board, October 2024.
4 Participants/account owners are generally permitted to change the beneficiary to another member of the family (as defined in the Internal Revenue Code) without triggering federal income and additional taxes.
