Compare the benefits of 529 plans over other savings options. (2024)

FAQs

What are the benefits of a 529 plan vs savings account? ›

529 Plan vs Savings Account

A 529 Plan's main benefits are tax-deferred growth, more growth potential, and tax-free withdrawal for qualified education expenses. A 529 Plan can be invested into ETFs or target date funds which can offer more growth opportunities compared to a lower interest-earning savings account.

529 tax advantage.

Your investments grow tax-free, and you also withdraw funds tax-free for education expenses, such as tuition, room and board and assigned textbooks. You can use withdrawals from education savings plan accounts at any college or university, and some trade schools.

What is the main advantage of a typical 529 plan? Earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary, such as tuition, fees, books, as well as room and board.

Tax-advantaged growth potential

ScholarShare 529 provides tax benefits for California families saving for college. Any earnings are tax-deferred, and withdrawals are tax-free when used for qualified higher education expenses. These tax advantages can add up and give your beneficiary an even bigger head start!

Coverdell ESAs allow savings for K-12 while 529 plans are just for college. Coverdell ESAs have income limits while 529 plans do not. You have more investment options with Coverdell ESAs compared to 529s.

Anyone who wants to save for a child's education can open a 529 plan account. There may be benefits to opening an account. The account owner keeps control of the money, can make investment decisions, and can even change the beneficiary if plans change. There may be estate tax benefits in some cases.

Money in a 529 Plan has tax advantages, is professionally managed, and may benefit from the power of compounded growth. Compounding means that any income earned on your investments in the account has the potential to generate additional income in the next year and each year thereafter.

A 529 savings plan is designed to help families save for education expenses. The key advantage of a 529 savings plan is that disbursem*nts are tax-free when used for qualified education expenses.

529 plan investments grow on a tax-deferred basis, and distributions are tax-free when used to pay for qualified education expenses, including college tuition and fees, books and supplies, some room and board costs, up to $10,000 in K-12 tuition per year, and up to $10,000 in student loan repayment per beneficiary and ...

Is a 529 plan really worth it? ›

The largest benefit of 529 plans is that your investment has the potential to grow and can later be withdrawn free of federal income tax. That means you don't have to pay federal income tax on earnings from your investments.

When deciding between a 529 college savings plan and a brokerage account, consider your financial situation, goals, and risk tolerance. If tax advantages and minimizing financial aid impact are important to you, a 529 plan is the better choice.

Tax advantages

Earnings in a 529 plan grow federally tax-deferred, which means your money has a chance to compound faster because you don't have to pay taxes on current investment income or capital gains.

With a 529 plan, your money will have more time to grow and compound the sooner it's opened and funded. Prepaid tuition plans offer the advantage of locking in current tuition rates, potentially saving you money compared with future prices, as many schools increase tuition annually.

Prepaid tuition plans allow parents, grandparents and others to prepay tuition at today's tuition rates at eligible public and private colleges or universities, helping them manage future tuition costs. Most states guarantee that the funds you put into a prepaid plan will keep pace with tuition.

If your child decides not to attend college, the funds can be used at any eligible educational institution offering higher education beyond high school, including some overseas, trade or vocational schools eligible to participate in a student aid program run by the U.S. Department of Education.

As with 529 savings plans, prepaid tuition plans grow in value over time. Eventual withdrawals from the account used to pay tuition are not taxable. However, unlike savings plans, prepaid tuition plans do not cover the costs of room and board.