Family reviewing 529 education savings plan on laptop at kitchen table.
American households saving for education can leverage 529 accounts for tax-advantaged growth.
529 education savings accounts, typically opened by parents or grandparents, allow savings to grow tax-deferred and funds to be withdrawn tax-free for qualified expenses. Individuals can also open accounts for their own education.
Thomas Psaltis, director of education savings programs at Bank of America Merrill Lynch, said, “529s are the optimal vehicle for education savings… That growth in earnings, if used tax-free, can have a significant impact… and help combat the rising tuition costs.”
Psaltis noted the versatility of 529 accounts, which have expanded beyond four-year colleges. Recent legislation, including the SECURE 2.0 Act and President Trump’s One Big Beautiful Bill, allows for using up to $20,000 annually for K-12 private education.
Registered apprenticeships and credentialing programs are now included as qualified expenses. Merrill Lynch advisors encourage clients to plan ahead, noting 529 plans meet savings needs at all income levels.
Since their inception 30 years ago, 529 plans have grown to 17 million accounts with over half a trillion dollars in assets. Psaltis addressed misconceptions about 529 plans, stating, “There’s this misconception that you have to fully fund college for a 529 plan to be worthwhile… Families who end up using taxable savings instead of a 529 may be giving up meaningful long-term returns.”
Contributions are taxable gifts, allowing individuals to contribute up to $19,000 per year, per beneficiary without gift tax liability. Accounts can be frontloaded with up to five years of giving at once, up to $190,000 per beneficiary.
If a beneficiary doesn’t plan on attending college or an accredited program, funds can be held in case they change their mind. Beneficiaries can be switched, and unused funds can be shared with siblings.
Psaltis added, “One of the key features… is the ability to roll over a portion of your 529 proceeds up to $35,000 into a Roth IRA… to help jump-start their retirement.”
Withdrawals for non-qualified expenses are subject to income tax and a potential 10% federal tax penalty on the earnings portion.
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