Financial Aid

What Parents Need to Know About 529 College Savings Plans

Familiarize yourself with this college savings strategy.

Kathryn Knight Randolph

October 07, 2022

What Parents Need to Know About 529 College Savings Plans
Time to open a 529 college savings plans. 
While most parents say that they know they should save for college, there are few who know when to start and how to save. Though any dollar saved is one less dollar you’ll have to borrow, there is a way to save for college that is “a better deal.”

What Parents Need to Know About 529 College Savings Plans

One of the most lucrative ways to save for college is a 529 College Savings Plan. It is a state-sponsored investment account that grows at about 6% per year. These college savings accounts can grow tax free, and withdrawals made from these accounts are tax free as well, as long as the funds are used for education expenses. Many states also offer annual tax deductions or credits for contributions made to 529 college savings accounts.

What are qualified education expenses for 529 college savings account?

Many parents might assume that a 529 college savings account can only be used toward a four-year education, but that’s not the case. The following are all qualified education expenses that can be used with a 529:

Technical College

Technical colleges train students for a trade or career. Their programs can last anywhere from 2 – 4 years, but unlike a community college or traditional four-year college, the education offered is very specific to the career a student will have after graduation.

Trade School

Trade, or vocational, schools train students to perform a specific role, like medical coding and billing or cosmetology. These programs can range in time from a few months to two years.

College Supplies

While a 529 won’t necessarily cover your expenses related to paper, pencils, and binders, it does cover school supplies, like textbooks and laptops or tablets. These supplies are necessary to instruction and are therefore covered with a designated 529 college savings account.

Room and Board

If you’ve never looked at college costs before, you may be surprised to find that tuition isn’t necessarily the most expensive component. Sometimes, room and board costs more than tuition. For that reason, room and board are considered qualified education expenses with 529s.

Student Loans

In 2019, then-President Trump signed a bill into law that gave 529 account holders the ability to pay student loans with any money saved. Account holders can take up to $10,000 over their lifetime to cover student loan payments without any penalties or tax consequences.

Study Abroad

Qualified education expenses for study abroad can be covered by a 529. What is considered a qualified education expense in the U.S. is the same for study abroad: tuition, fees, supplies and equipment, and room and board. Flights and transportation within the study abroad country are not covered.

K-12 Private Schools

Finally, funds in 529 college savings accounts can be used for private education from kindergarten through grade 12. Up to $10,000 can be withdrawn, tax-free, from an account.

When should I start saving with a 529 college savings account?

You can open a 529 college savings account at any point, but most financial planners suggest opening an account as soon as your child is born. That gives the account 18 years to mature. For a family that deposits $100 per month into an account, over $40,000 will be available once the child reaches 18 years of age. With a typical savings account, a monthly deposit of $100 will only result in a little over $20,000 after 18 years. If you do open a 529 savings account later in your child’s life, you may want to be more aggressive in your saving than just $100 a month. However, at Fastweb, we always say that a dollar saved today is one less dollar you’ll have to borrow to pay for college. Even if you just begin saving in the senior year, it’s better than nothing.

Where do I open a 529 college savings plan?

Every state in the United States has a 529 savings plan program for residents. Some states even have multiple options. Additionally, there are nationwide college savings plans. offers a comprehensive comparison of each state’s plan as well as nationwide savings plans. After choosing a plan, you will name a beneficiary. Though this will likely be your child, you can change the name of the beneficiary at any time without penalty. You can also open a 529 college savings plan for anyone, meaning grandparents can open them for grandchildren or godparents can open them for godchildren. There are no regulations or stipulations here, except that they must be a U.S. citizen or resident alien. It should be noted that you should never put your child’s name as the account holder – only the beneficiary. Student assets are scrutinized more heavily on financial aid applications, meaning a 529 account in their name could be disastrous for their financial aid eligibility. Most accounts can be opened online, and you can either deposit money manually or automatically from your bank account. Investment strategies can be age-based, aggressive, moderate, conservative, or a mix. It’s entirely up to you – or what your plan recommends.

What happens if my child does not continue their education?

If your child does not attend vocational, community, or a traditional college after high school, you have several options. First, you can change the name of the beneficiary on the account to some else within your immediate or extended family. It could be yourself, if you plan to return to school, other children, siblings, nieces, nephews, or first cousins. Second, you can withdraw the money from the account and use it elsewhere. If it’s not used on qualified education expenses, you will incur a 10% penalty charge. Finally, you can hold onto the 529 college savings account for your child in the event that they do decide to attend college. Not everyone is ready to continue their education at age 18. Instead, they wait until their 20s – or even later in life. If that is your child, any money saved for them in their 529 will still be redeemable for their education.

Join Fastweb.
Match Instantly.

Become a member and gain exclusive access to our database of over 1.5 million scholarships.

I am a:
Parents: Complete the questions using your child's information
Please select a grade level
Please enter a valid zip code.

By clicking, I agree to the Terms & Conditions and Privacy Policy.