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5 Benefits of a 529 College Savings Plan

Saving for your child or grandchild’s college can feel like an overwhelming goal, especially as the cost of education continually rises. Fortunately, 529 plans are here to help. They’ve become an increasingly popular way of saving for a family member’s college education, thanks to their tax advantages, flexibility, and other perks. Let’s explore 5 benefits that make this savings vehicle so popular. 

Tax Advantages

529 plans provide federal tax-free growth as well as tax-free withdrawals, so long as the money is used towards qualified higher education expenses. This isn’t limited to tuition. Books, fees, supplies and computers are all included, as well as room and board as long as the student is enrolled at least half-time. This tax-free treatment was created with the Pension Protection Act of 2006, and has been a great incentive in boosting Americans efforts to save for higher education.1 It’s important to know that if you use the funds for non-qualified education expenses, the withdrawn earnings are subject to federal tax along with a 10% penalty. 

Although Massachusetts does not offer any tax breaks, some states do offer either a full or partial tax credit or deduction for contributions to their states plan. 

You Maintain Control Over The Account 

The named beneficiary has no legal rights to the funds in a 529 account. This means that the account owner retains control of the assets and will be assured that the money is being spent as it was intended. Keep in mind that once you distribute those funds to the beneficiary, you relinquish that control. So, if you do send the money directly to your child or grandchild, it’s crucial that they hold onto all receipts of how the funds are spent. 

Anyone is eligible to open a 529 plan

529 Plans have no income limits, age limits, or annual contribution limits. Therefore, anyone is able to open a 529 plan. Be mindful of lifetime contribution limits, which range from $235,000 - $520,000 depending on your state. 

If the contributor to a 529 account does elect to use 5-year gift-taxing averaging, there is a $75,000 limit per beneficiary, or $150,000 for a joint contributing couple. If the contributor does elect to use a 5-year gift-tax averaging, then contributions in excess of the annual gift tax exclusion of $15,000 per beneficiary, or $30,00 for a couple jointly contributing, could be subject to gift taxes or use up the lifetime gift tax exemption. If there are any gift taxes, they are paid by the contributor, not by the beneficiary of the owner of the 529 account.2

Easy Maintenance

One of the great advantages to a 529 plan is the ease of investing. Similarly to 401(k)s, most 529 plans offer automatic investments for both stock and bond funds. Automatic investing has proven to be very helpful in allowing families to save for college. Investors are also then able to benefit from dollar cost averaging, as well as reduce volatility. 

Parents and grandparents can set up automatic investments when they first open the 529 account. Many plans offer a lower minimum initial contribution amount at this time. Some employers may also offer an automatic payroll deduction option for 529s. These contributions are made with after-tax dollars that are taken straight from the account owner’s paycheck.3


529 plans are one of the more flexible saving vehicles. You can change your investment options twice in any given year. Funds can also be rolled over into another 529 plan one time during a twelve-month period. 

When the beneficiary of the 529 account earns their bachelor’s degree, the remaining funds can be used in the future for further education, including graduate, trade or vocational schooling. If your child decides to not use the funds, the 529 can be reassigned to another family, or even yourself. 

We’re here to help 

529 plans are one of many education funding strategies. You may want to speak with a financial advisor to determine what strategies will make the most sense for you and your family’s needs.

Investment adviser representative and registered representative of, and securities and investment advisory services offered through Voya Financial Advisors, Inc. (member SIPC). Archstone Financnial is not a subsidiary of nor controlled by Voya Financial Advisors.

1  https://www.savingforcollege.com/questions-answers/article/pension-bill-makes-529-tax-exemption-permanent 
2  https://www.savingforcollege.com/article/massachusetts-529-plan-contribution-limits 
3  https://www.savingforcollege.com/article/automatic-investing-in-a-529-plan