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.
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 college-savings investment-option 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 used for qualified educational expenses may be taxed as ordinary income and may be subject to a 10% additional federal penalty 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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