What Are the Rules for a 529 Plan?

A 529 plan is a savings account designed to help families set aside funds for future education costs. Sponsored by states or private educational institutions, these plans offer tax advantages. Contributions are invested in various portfolios, allowing the account’s value to grow. When money is withdrawn for approved educational expenses, those withdrawals are free from federal income tax, making it a popular tool for funding a beneficiary’s academic journey.

Contribution Rules and Limits

While the federal government does not set an annual contribution limit, contributions to a 529 plan are considered gifts for tax purposes. For 2025, an individual can contribute up to $19,000 per beneficiary without triggering the gift tax. A married couple can jointly contribute up to $38,000.

A rule allows for “superfunding” an account, where a contributor makes a lump-sum payment of five years’ worth of the annual gift tax exclusion at once. In 2025, this allows for a single contribution of up to $95,000 per beneficiary. The contributor must file a gift tax return (IRS Form 709) to spread the gift over a five-year period.

Each state sets its own aggregate contribution limit, which is the maximum total balance an account can reach for a beneficiary. These limits range from $235,000 to over $575,000. This cap applies to the total value of the account, including earnings.

Over 30 states also offer a state income tax deduction or credit for contributions. This benefit is often available only if you contribute to your home state’s plan and is typically capped annually.

Qualified Education Expenses

Withdrawals from a 529 plan are tax-free when used for qualified education expenses. The rules defining these expenses have expanded over the years, offering more flexibility to account holders.

Higher Education Costs

The funds can be used for costs associated with post-secondary education at eligible colleges, universities, or vocational schools. Qualified expenses include:

• Tuition and mandatory fees.
• Required books, supplies, and equipment needed for enrollment.
• Computers, peripheral equipment, software, and internet access used primarily by the beneficiary while enrolled.
• Room and board, provided the student is enrolled at least half-time.

The amount for room and board is limited to the allowance in the institution’s cost of attendance or the actual amount charged for university-owned housing.

K-12 Tuition

Account owners can withdraw up to $10,000 per beneficiary, per year, to pay for tuition at a public, private, or religious K-12 school. This is a per-student cap, regardless of how many 529 accounts exist for that beneficiary, and applies only to tuition.

Apprenticeship Programs

Funds can be withdrawn tax-free to pay for fees, books, supplies, and equipment for participation in a registered apprenticeship program. The program must be registered and certified with the U.S. Secretary of Labor.

Student Loan Repayment

A lifetime maximum of $10,000 can be withdrawn from a 529 plan to repay the principal and interest on a qualified student loan for the beneficiary. An additional $10,000 can be used to repay the student loans of each of the beneficiary’s siblings. This is a lifetime, per-borrower limit.

Rules for Non-Qualified Withdrawals

A withdrawal used for anything other than a qualified education expense is considered non-qualified and has tax consequences. The money in a 529 plan consists of original contributions and investment earnings. When a non-qualified withdrawal is made, the portion from contributions is returned tax-free.

The portion of the withdrawal attributable to earnings is subject to federal income tax at the recipient’s rate and an additional 10% federal tax penalty. For example, if an account is 25% earnings and the owner takes a $4,000 non-qualified withdrawal, $1,000 of that withdrawal would be considered earnings. This $1,000 would be subject to income tax plus a $100 penalty.

The 10% penalty is waived in specific circumstances, although the earnings are still subject to income tax. These exceptions include the death or disability of the beneficiary. The penalty is also waived if the beneficiary receives a tax-free scholarship or attends a U.S. military academy, but only up to the amount of the assistance received.

Ownership and Beneficiary Regulations

Any U.S. citizen or resident alien can open and own a 529 plan, and there are no income restrictions. The account owner maintains full control over the funds, directing investments and authorizing withdrawals. This control includes the ability to change the plan’s beneficiary.

The beneficiary is the individual for whom the funds are saved and can be a child, grandchild, friend, or even the account owner. A 529 plan is designed to pay for this person’s qualified education expenses. A single plan can have only one designated beneficiary at a time.

An account owner can change the designated beneficiary to another “member of the family” of the previous beneficiary without tax consequences. The IRS defines a member of the family broadly to include the beneficiary’s spouse, children, siblings, parents, aunts, uncles, nieces, nephews, and first cousins, as well as step-relations and in-laws.

This flexibility is useful if the original beneficiary does not pursue higher education, receives a full scholarship, or if funds remain after schooling. The owner can designate a new, qualifying family member by completing a form from the plan administrator. This action allows the funds to continue growing tax-advantaged for another person.

Rollover and Transfer Rules

529 plan rules allow for moving money to other savings vehicles under specific conditions. An account owner can move funds from one 529 plan to another for the same beneficiary once every 12 months without tax consequences. This allows savers to switch to a plan with better investment options or lower fees, provided the transfer is completed within 60 days.

Funds can also be rolled over from a 529 plan to an ABLE (Achieving a Better Life Experience) account, which is a tax-advantaged savings account for individuals with disabilities. This rollover is permitted if the ABLE account’s beneficiary is the same as the 529 plan’s beneficiary or a member of their family. The amount rolled over is subject to the annual ABLE contribution limit.

The SECURE 2.0 Act allows for rollovers from a 529 plan to a Roth IRA, subject to several conditions. The 529 account must have been open for at least 15 years. The rollover must be made to a Roth IRA owned by the 529 plan’s beneficiary.

There is a lifetime maximum of $35,000 that can be rolled over per beneficiary. The amount moved each year is also limited by the beneficiary’s annual Roth IRA contribution limit, which for 2025 is $7,000 for individuals under 50. Any contributions made to the 529 plan within the last five years, and their earnings, are not eligible for this type of rollover.