529 Plan | Notion

A 529 plan is a tax-advantaged investment account designed to help families save for education expenses. You don't get a federal tax deduction when you contribute, but the money grows tax-free and withdrawals for qualified education expenses are also tax-free

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Introduction to 529 Plans

The federal government created 529 plans in 1996 to address the rising cost of education and encourage families to save for future educational expenses.

These plans are named after Section 529 of the Internal Revenue Code. By offering tax incentives, the government helps reduce the financial burden of education costs while promoting educational attainment across the country.

Just like retirement accounts help people prepare for their post-working years, education savings accounts help families prepare for the substantial costs of schooling.

With the average published tuition and fees for full-time undergraduate students at public four-year out-of-state schools at $30,780 and private nonprofit four-year schools at $43,350 in 2025, these tax advantages can make a meaningful difference in a family's ability to afford education.

Types of Tax-Advantaged Education Accounts

While 529 plans are the most versatile education savings vehicle, there are other tax-advantaged options:

529 Education Savings Plans: The most flexible option with the highest contribution limits and broadest use of funds for K-12 through graduate school.
Coverdell Education Savings Accounts (ESAs): Similar tax benefits but with lower contribution limits ($2,000 per year) and income restrictions. Can be used for K-12 and college expenses.
ABLE Accounts: For individuals with disabilities, offering tax-free growth for disability-related expenses including education. 529 funds can now be rolled over to ABLE accounts without the previous expiration date limitation.

How 529 Plans Work

A 529 plan functions as a tax-advantaged investment account where:

You contribute after-tax dollars (no federal tax deduction)