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When to Consider a 529 College Savings Plan?

Updated: Apr 15

Follow this guide to evaluate the benefits of a 529 college savings plan, and if it's right for your family

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If you're like many of parents, college feels like it's a million years away for your child. Especially if you are a new parent, or just newly pregnant and trying to update your financial plan. (Psst, if you're pregnant, we can help you sort through your new baby financial plan updates. See: A Baby Changes Everything.)

But, like it or not, that tens-of-thousands-of-dollars expense is looming in the future. We can help you tackle that big savings goal. And, even more, we can help you determine how to use these funds. (Psst, some states allow you to use college savings funds for primary or secondary school, not only college! And, did you know you can use these funds for multiple children?! Keep reading to learn more!)

What is a 529 college savings plan?

First thing's first. What the heck is a 529 plan, or otherwise known as a college savings plan, and technically called a "qualified tuition program"?

These college savings plans were created decades ago, in an effort to encourage people to save money for their children's college tuition. The plan was for college students to rely on less federal loans and sign up for less debt. The colloquial name, 529, gets its name from the tax code it is filed under.

What's the big deal with 529 college savings plans? Earnings on these investment plans are not taxed when they are used for qualified college expenses, and many states allow a tax deduction when contributing into the plans.

What are the benefits of a 529 college savings plan?

Saving for college early—sounds pretty smart, right? (We think so!) The benefits of college savings plans are twofold.

  • First, some states allow for a state deduction with contribution, usually up to a certain amount (see below).

  • Second, the earnings and growth of college savings funds are federal tax free, when used for qualified expenses.

  • Third, unused 529 funds up to a certain limit can be rolled into a roth IRA down the road

Can you use 529 college savings funds for other schools?

Do you have elementary or secondary aged children enrolled in private school? You may be wondering if you should route tuition payments through your child's 529 plan or use existing 529 funds.

The 2017 Tax Cuts and Jobs Act further increased flexibility behind college 529 savings plans. The 2017 law allows for distributions from 529 plans to include tuition for primary or secondary education up to $10,000 per year, per family.

A word of caution... don't jump into distributions so fast; it's complicated.

As we previously mentioned, the earnings and growth of college savings funds are federal tax free, when used for qualified expenses. This means that, even if your state allows for 529 funds for elementary or secondary tuition, if the funds do not have significant time to grow in the 529, you lose that appreciation tax benefit. This happens because the tax-free growth is so valuable.

Does your state allow use of 529 funds for primary or secondary education?

Before moving forward using your 529 college savings fund for your child or children's primary or secondary school tuition, ensure your state has formally approved the 2017 Tax Cuts and Jobs Act.

Although the federal government created 529s, they are administered by the individual state—not necessarily your state of residence, but rather, the state that manages your particular 529. (See: What's the Right College Savings Plan for Me.) Many states have formally agreed that they will allow distributions to cover elementary and secondary tuition, but many states have not.

Last to consider, if the 529 balance exceeds the expected college cost, a distribution for elementary or secondary education may be a beneficial route, but there are still other options. (Psst, did you know you can use your college savings funds on more than one child? Or, even your children's children?! Keep reading!)

Map of U.S. with estimated tax savings for couples filing jointly


Follow this check-list to determine how to use your 529 college savings funds

As you now know, 529 college savings plans are incredibly beneficial. They help you tackle saving for this massive expense slowly, and can have tax benefits. That's what we call a win-win-win situation—everyone wins!

Review the below checklist to determine if using your 529 college savings funds for your elementary or primary school is possible and advisable.

  1. Which state manages your 529? You can find this on your statement.

  2. Has that state declared if they will allow 529 distributions for elementary and secondary tuition? This ruling will determine whether or not you can use these funds for anything but college.

  3. Do you have more money in your 529s savings account than what your child will need for college? If you do, you can consider pulling funds out to support elementary or secondary tuition. Or, another option to keep in mind is to allow these funds to continue to grow further for their children or siblings. Remember that your college savings funds can be for more than one child.

  4. Are considering routing tuition through a 529? If so, which state tax deduction are you eligible for? Remember you receive the potential state tax deduction when you are investing in your home state's 529, which may not always be the right fit.

  5. Are you maxing out the benefits? If you're already contributing to your children's 529, you may already be receiving the max state benefit for contributions.

College savings plans are great tools to help yourself save for the future. One word, or phrase, of caution, though: just like they say to protect yourself before others on airplanes, we suggest you consider getting your own savings in order before funding a college savings plan. Make sure you've paid down big debt (See: How to Pay Off Debt When Cash is Tight) and are already saving for retirement (See: No 401k? We Can Work with That and How Much Should I Save for Retirement?) before you start pouring your money into a 529 college savings plan for your child or children.


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