What Is a 529 Plan?
A 529 plan is a tax-advantaged savings account designed for education expenses. Contributions grow tax-free, and withdrawals are tax-free when used for qualified education expenses including tuition, room and board, books, and even K-12 tuition up to $10,000/year. Many states offer additional tax deductions for contributions.
Choosing the Right Plan
You can open a 529 plan in any state, regardless of where you live. Key factors: your state's tax deduction (if any), fund selection and quality, fees, and investment options. States like Utah, Nevada, and New York consistently rank highly. If your state offers a tax deduction for contributions, that's usually worth prioritizing even if the fund options aren't the absolute best.
Investment Strategy by Age
Most 529 plans offer age-based portfolios that automatically shift from aggressive (stocks) to conservative (bonds) as the beneficiary approaches college age. This is the right approach for most families. For a newborn, you have 18 years of growth potential — start aggressive. By high school, you want to protect gains with conservative allocations.
The New Roth IRA Rollover Rule
Starting in 2024, unused 529 funds can be rolled over to a Roth IRA for the beneficiary, up to $35,000 lifetime. The 529 account must be open for at least 15 years, and rollovers are subject to annual Roth IRA contribution limits. This is a game-changer — it eliminates the biggest concern about 529 overfunding and makes these accounts even more valuable.
Common 529 Mistakes
Avoid these pitfalls:
• Waiting to start because the amount feels too small (even $50/month grows significantly over 18 years) • Choosing your state plan without comparing options • Using custodial (UGMA/UTMA) accounts instead of 529s and losing control • Not updating the beneficiary when plans change • Forgetting to claim state tax deductions