Paying for college can be expensive – and the price is only going up.

According to the College Board, the average cost of tuition and housing at a four-year, in-state public university for the 2024-25 school year was $24,920. And the cost of out-of-state public universities and private colleges is significantly higher, at $44,090 and $58,600 per year.

With such high costs, it’s important to plan – and save – ahead for your family’s college education. One savings option, called a 529 plan, can be a great tool to help you prepare for future education expenses.

What is a 529 Plan?
A 529 plan (so-called because it’s authorized by Section 529 of the Internal Revenue Code) is a tax-advantaged investment account designed to help families save for education costs. Anyone can set up a 529 plan, but each plan can only have one beneficiary (in other words, someone who is intended to benefit from the account in the future). A beneficiary could be a child, grandchild, other relative, friend, or even yourself.

Funds from a 529 can be used for:

• College tuition
• Fees
• Room and board
• Required course supplies
• Student loan repayment 
• Tuition expenses for K-12 public, private or parochial schools

Money you contribute to a 529 plan grows tax-free over time, and you won’t pay taxes on your earnings or your withdrawals as long as you use the funds for eligible education expenses. This combination of tax-deferred growth and tax-free withdrawals makes 529 plans a great option for saving for education.

How Much Can You Contribute to a 529 Plan?
While 529 plans don’t have an annual contribution limit, contributions are considered gifts for federal tax purposes. For 2025, the gift tax exclusion is $19,000 per year (or $38,000 for married couples) per beneficiary. This means you can contribute up to $19,000 to your beneficiary’s 529 plan per year without any tax implications.

What if Your Child Doesn’t Go to College?
If your child decides not to attend college (or any qualified school), you can:

• Name another beneficiary for the 529 account.
• Take a non-qualified withdrawal and use the funds for something other than education. A non-qualified withdrawal is subject to a 10% federal penalty and applicable federal, state and local taxes (some exceptions apply). 
• Fund a Roth IRA for the beneficiary. The SECURE Act 2.0, enacted in 2022, allows 529 plan funds to be transferred tax-free into a Roth IRA owned by the beneficiary, subject to certain conditions and limitations.
   

The owner of the 529 account has control of the funds until they’re withdrawn.

Plan Benefits Vary by State
529 plan criteria, including contribution funding, maximum account balance limits, fees and income tax credits, vary from state to state. Each state plan may offer different advantages. For example, North Dakota’s plan offers up to a $300 match for North Dakota residents, a new-baby match up to $200 when opening an account for a baby up to 12 months old, and a kindergarten kickoff match up to $100 for children of kindergarten age. Check with your state education agency to learn about possible matches or tax credits.

Contact Us to Learn More
No matter your child’s age, it’s never too early or too late to start saving for education. If you’re interested in learning more or would like to set up a 529 plan, contact us today at 701.451.3000.

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