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529 college savings plans

A 529 plan lets you save for your child's future and enjoy other benefits too.

What is a 529 savings plan?

A 529 savings plan is an investment account meant for college and other higher-education costs. The plans are usually sponsored by states and offer great tax benefits.

How a 529 plan can help you reach your college goal

Pay less in taxes

The biggest draw of 529 plans? Tax benefits. So you can use the money you save to give your account balance an even bigger boost!

Tax deductions

That's right—most states let you deduct your 529 plan contributions on your state income tax return, up to your state's limit.* That translates to a higher account balance and lower taxes for you. That's what we call a win-win!

Tax-deferred growth

Your earnings will be deferred from federal and usually state taxes—another benefit to investing in a 529 account instead of a taxable account.

Tax-free withdrawals

You won't be taxed on the money you withdraw for qualified higher-education expenses.** In other words, in most cases you won't have to pay state or federal income taxes on earnings in your 529 account, as long as you use the money for qualified expenses.

Gift tax benefits

Make up to 5 years' worth of contributions at one time without triggering gift tax.

Use 529 plans for a variety of higher-education costs

Along with tuition, you can use your 529 account to pay for room and board, fees, books, and other expenses at a variety of eligible schools, including colleges, universities, and trade or technical schools.

Save for anyone

Start saving for a child, grandchild, other family member, friend—even yourself. You can also save for an unborn child and transfer the account from yourself to your child once he or she arrives.

Control the account

Because you're the account owner, you (not your child) have control of when and how your money is spent, even after the person you're saving for becomes an adult.

Save as much as you want

Increase your college savings by contributing as much as you want. Maximums are usually between $300,000 and $400,000 per beneficiary.

Have less counted against financial aid

As long as you (as the parent) are the account owner and your child is a dependent, the savings in a 529 will have a much lower impact on financial aid than a different type of account opened in your child's name.

Give your money a chance to grow

Most 529 plans allow you to choose from a variety of portfolios that have stock, bond, and international exposure, so you can give your money plenty of opportunity to grow.

Spend less time managing investments

Many 529 plans offer all-in-one portfolios that automatically rebalance and change their asset mix based on your child's age.

Get access to your money if you need it

If something comes up and you really need the money for purposes other than education, you'll have access to it. You might have to give up some of your earnings, but you won't pay a penalty on the amount you originally invested.†

Top questions about 529 savings plans

What if I don't need the money for college?


We all know it's hard to predict the future. So if your child doesn't end up needing the money for college (or grad school or trade/vocational school), you have a few options. You can give the money to someone else (a qualified family member) to use for college. Or you can use the money for anything. However, penalties (on earnings, not contributions) apply when you use the money for costs that aren't for qualified expenses.†

If your child ends up getting a scholarship, you can withdraw up to the amount of the scholarship. You can also make additional withdrawals for other qualified expenses. The earnings on the scholarship amount will be subject to federal, state, and local income tax.

Does it matter where my child chooses to go to school?


No. You can invest in any state's 529 plan and use the money to pay for school in the United States or abroad as long as the school is considered an eligible education institution.

Should I open a 529 for each of my children?


Since an account can only have one beneficiary, it's probably a good idea to open separate 529 accounts for your children. You'll also want to tailor the mix of investments in each account based on your children's ages.

What if my child is in high school? Is it too late to start saving?


It's never too late to start saving. Even if your child is a teen, you can still take advantage of tax deductions and tax-free withdrawals.

How do 529s impact financial aid?


If the student is a dependent and the 529 account is owned by either the parent or the student, the account is considered the parent's asset. As a result, up to 5.64% of its value will be added to the student's expected family contribution (EFC).

For example, a $10,000 529 account will increase the student's EFC by up to $564.

If the student isn't a dependent and is the owner of the 529 account, the account is treated as the student's asset and will generally increase the student's EFC at the higher rate of 20% of the account's value.

If the 529 account is owned by someone else (such as a grandparent), it doesn't count as an asset for federal financial aid purposes. However, when withdrawals are made from the account to pay for college expenses, they'll generally count as income for the student and, therefore, have a much greater impact on his or her financial aid the following year.

The Vanguard 529 College Savings Plan is a Nevada Trust administered by the Board of Trustees of the College Savings Plans of Nevada, chaired by the Nevada State Treasurer.

Open a Vanguard 529 Plan

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The investment returns you accumulate on the savings in your account.

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The difference between tax-deferred growth and taxable growth

Tax-deferred growth means you won't pay any income taxes on the amount your account earns until you take the money out.

For example, imagine you and your friend both open college savings accounts at the same time and contribute $25 a week for 18 years. You choose an account with federal tax benefits, while he opens an account with no tax breaks. When taxes are due on his earnings, he takes money out of the account to pay them.

If you both earn 6% a year on your investments, you'll have about $3,800 more in your account when it's time for college!

This hypothetical illustration doesn't reflect any particular investment nor does it account for inflation or any state tax considerations. It assumes your friend pays 25% in federal income taxes on investment gains. (Note that investment gains may be taxed at a more favorable rate.) It also assumes that all withdrawals from the tax-deferred account are considered qualified. Earnings on nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The assumed rate of return isn't guaranteed, and the results would be different given a different rate of return. When making an investment decision, you should consider your own timeline and income tax bracket, as the illustration may not reflect your situation.

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The person you're opening the account for, or the future student. This person doesn't have control of the money in the account, but can use the money from the plan for school costs. The account owner controls the money on behalf of the beneficiary.

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Put your money to work for you

Give your money more potential to grow, and it will get you a lot closer to your goal.

For example, imagine you saved $25 a week for 18 years, and kept it in a bank account earning 1% annual interest. When it's time for college, you'd have about $25,750—the $23,400 you put in and about $2,350 in interest.

Now imagine you invested the money and earned 6% a year. After 18 years, you'd have about $42,600 instead.

That's almost $17,000 in additional money your child can use for college!

All investing is subject to risk, including the possible loss of the money you invest.

This hypothetical example does not represent the return on any particular investment.

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Asset mix

The way your account is divided among different asset classes, including stock, bond, and short-term or "cash" investments.

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Qualified family member

You can change the beneficiary of your account at any time as long as the new beneficiary is a qualified family member of the original beneficiary. Here is a partial list of relatives that are considered qualified family members according to the IRS:

  • Brother, sister, stepbrother, stepsister, half-brother, or half-sister.
  • Son, daughter, or a descendant of either.
  • Father, mother, or an ancestor of either.
  • Son-in-law, daughter-in-law, brother-in-law, or sister-in-law.
  • Beneficiary's spouse or the spouse of any individual listed above.
  • First cousin.
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Expected family contribution (EFC)

The amount of money you'll be expected to pay for college out of pocket, which influences the amount of need-based federal aid you'll qualify for. It's mainly based on parent income and assets, student income and assets, the size of your household, and the number of people currently attending college in your household.