529 Plans were created as a complement to prepaid tuition plans established by many states. Unlike prepaid tuition plans, there are generally no residency requirements.
529 savings plan monies can be used to pay for education costs at any accredited college, university or technical school in any state. This might be a college, graduate school, professional school, a post-secondary vocational school or trade school. The school may be either private or public; in-state or out-of-state. Certain expenses associated with registered apprenticeship programs (including fees, books, supplies and equipment) and certain institutions located in foreign countries are also eligible higher educational institutions. 529 Plan account owners can also withdrawal assets to pay for K-12 tuition (public, private or religious) up to $10,000 per year per beneficiary. Always consult a tax professional, K-12 withdrawals may be subject to specific state taxes.
Additionally, 529 Plan account owners are allowed to withdraw assets to pay principal and interest on qualified higher education loans for the beneficiary or any of the beneficiary’s siblings. The loan repayment provisions apply to repayments up to $10,000 per individual. These withdrawals will have no federal impact.
This chart makes it easy to compare different savings vehicles side-by-side:
| Comparison of benefits | CollegeAccess 529 Plan | Coverdell Education Savings Account | UTMA/UGMA Account |
| Contribution limit | Up to $350,000 | $2,000 per student per year | None |
| No limits on contribution age1 |
✔ |
Until 18 years of age | Until child reaches maturity (18 or 21) |
| Account owner always remains in control of the account |
✔ |
✔ |
— |
| Changes to beneficiary permitted |
✔ |
✔ |
— |
| Withdrawals for qualified expenses are free from federal taxes2 |
✔ |
✔ |
— |
| Tax-free gifting of $15,000 (single filers) or up to $75,000 (single filers) with accelerated 5-year election3 |
✔ |
— | — |
| State-tax deduction4 |
✔ |
— | — |
If married and filing jointly, you can gift up to $30,000 per year—and up to $150,000 if you choose the 5-year accelerated gifting election.
- Some state plans do have their own age and/or time limits.
- Withdrawals that are not for qualified educational expenses may be taxed as ordinary income and may be subject to a federal 10% additional tax.
- Per year per beneficiary. Note that if the Donor dies before the first day of the fifth calendar year, a portion of the contribution must be added back to the Donor’s estate for tax purposes.
- Varies depending on the state.
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