Virginia VEST 529 Plan: How It Works

Virginia’s Invest529 plan is a state-sponsored savings program designed to help families set aside funds for future education expenses. As a qualified tuition program under Section 529 of the Internal Revenue Code, it provides specific tax advantages and allows money to grow in an investment account. This plan is direct-sold, meaning individuals can enroll without a financial advisor.

Any U.S. resident can open an account, and the funds can be used at eligible educational institutions nationwide. The account’s final value depends on the contributions made and the performance of the chosen investments.

Key Tax Advantages of the Invest529 Plan

Virginia residents who contribute to an Invest529 account can deduct their contributions on their state income tax return. An individual taxpayer can deduct up to $4,000 per account per year, while taxpayers age 70 and older can deduct the entire amount they contribute in a single year. For contributions exceeding the annual limit, Virginia law allows for an unlimited carryforward, meaning any amount contributed beyond the $4,000 limit can be deducted in subsequent tax years.

From a federal perspective, the plan offers two primary tax advantages. First, any investment earnings within the account grow on a tax-deferred basis. Second, withdrawals are entirely tax-free, provided the money is used for qualified education expenses.

Establishing and Funding Your Account

To open an Invest529 account, you must provide personal information for both the account owner and the beneficiary, including full legal names, permanent addresses, dates of birth, and Social Security Numbers. An account can be opened with a minimum initial contribution of as little as $10.

Anyone can contribute to an Invest529 account, including parents, grandparents, other relatives, and friends. While contributions are not deductible on federal income tax returns, they may qualify for the annual federal gift tax exclusion. For 2025, this allows a contributor to give up to $19,000 to any individual without incurring gift taxes. Virginia’s plan has an aggregate balance limit of $550,000 per beneficiary.

The Invest529 plan offers a range of investment choices, including target-date and static portfolios. Target-date portfolios automatically shift their asset allocation from more aggressive investments to more conservative ones as the beneficiary gets closer to college age. Static portfolios maintain a fixed allocation of stocks, bonds, and other investments and are for account owners who prefer to manage their own asset allocation.

Using Your Invest529 Funds

The funds saved in an Invest529 account can be used for a wide array of Qualified Higher Education Expenses (QHEE) at any eligible post-secondary institution. Qualified expenses include:

• Tuition and mandatory fees.
• Room and board costs, as long as the beneficiary is enrolled at least half-time. The amount is limited to the greater of the actual amount charged by the institution or the allowance included in the school’s official cost of attendance.
• The purchase of books, supplies, and equipment required for enrollment, including computers, software, and internet access.
• Up to $10,000 per year for tuition at an eligible public, private, or religious K-12 school.
• Expenses for fees, books, and supplies required for participation in a registered apprenticeship program.
• A lifetime limit of $10,000 per beneficiary to repay qualified student loans.

When you are ready to use the funds, you can request a withdrawal payment be made directly to the account owner, the beneficiary, or the educational institution. If you take a non-qualified withdrawal, the earnings portion of that distribution will be subject to federal and state income tax, plus a 10% federal penalty tax. The portion of the withdrawal that represents your original contributions is returned tax-free and penalty-free.

A federal provision allows for unused 529 funds to be rolled over to a Roth IRA for the beneficiary. This is subject to a $35,000 lifetime rollover limit and a requirement that the 529 account must have been open for at least 15 years.