🎯 In 30 seconds: A 529 plan grows free of federal tax, and money you take out for qualified education costs is tax-free too. From 2026 the list of qualified costs is wider than many families realize: up to $20,000 a year of K–12 costs, registered apprenticeships, workforce credentials and up to $10,000 of student loans. If the money isn’t needed, you can switch it to another family member, move some to the child’s Roth IRA after 15 years, or withdraw it and pay tax plus 10% on the earnings only.
How the tax break works
You put in money you have already paid tax on. Federal law gives no deduction for contributions. The investments then grow without yearly tax. When money comes out, no federal tax is due as long as the withdrawal is not more than the student’s qualified expenses for the year, after subtracting tax-free help such as scholarships.
The account has an owner (usually a parent) and a beneficiary (the future student). Anyone can contribute. Each plan sets its own maximum balance. For how a parent-owned 529 is treated on the FAFSA, see the parent toolkit on Paying for College.
State tax breaks: check before you pick a plan
You can use any state’s plan, but many states give a state income tax deduction or credit for contributions, and the rules differ a lot:
- Some states give the break only for their own plan. A few give it for any state’s plan.
- Most cap the deduction each year.
- Some take the break back if you later withdraw for a non-qualified reason or roll the money to another state’s plan.
- A state may not follow every federal expansion (K–12 costs, student loans, Roth rollovers). Check your state’s treatment before using the money that way.
- States without an income tax have nothing to deduct, so fees and investment choices decide.
Start with your own state’s plan website and its tax page, then compare yearly fees. Age-based portfolios that shift toward bonds as college nears are the usual default.
What counts as a qualified expense in 2026
| Expense | Rule | Limit |
|---|---|---|
| College tuition, fees, required books, supplies and equipment | At an eligible school, which includes most accredited colleges and trade schools | No yearly cap |
| Room and board | Student enrolled at least half-time | The school’s housing and food allowance in its cost of attendance, or the actual charge for school-owned housing, whichever is higher |
| Computer, software and internet | Used mainly by the student while enrolled | No set cap |
| K–12 costs at public, private or religious schools | Tuition, curriculum and books, online materials, outside tutoring by a qualified tutor, AP and college admission test fees, dual-enrollment fees, and therapies for students with disabilities | $20,000 a year per student from 2026 ($10,000 before) |
| Registered apprenticeship | Required fees, books, supplies and equipment | No set cap |
| Workforce credentials | Tuition, fees, books, testing and required continuing education for a recognized credential, such as programs on a state workforce list | No set cap |
| Student loans | Principal or interest for the beneficiary or a sibling | $10,000 lifetime per person; interest paid this way can’t also be deducted |
Worked example: growth, then a leftover balance
Ana saves $250 a month for her son Leo from birth to 18. At a 5% yearly return that grows to about $87,300: $54,000 she put in and about $33,300 of growth. While Leo is in college she matches each withdrawal to qualified bills in the same tax year, so none of it is taxed.
Now suppose Leo wins a large scholarship and $20,000 is left, of which $8,000 is earnings. If Ana takes it all out for non-qualified use, the $12,000 of contributions comes back tax-free. The $8,000 of earnings is taxed as ordinary income, and in a 22% bracket that is $1,760, plus a 10% additional tax of $800. Total cost: $2,560.
Because Leo received tax-free scholarships at least as large as the withdrawal, the $800 additional tax is waived. Regular income tax on the earnings still applies. Switching the beneficiary to Leo’s younger sister costs nothing.
If college never happens: your options
- Wait. Federal law sets no deadline to use the money. Plenty of people start school later.
- Change the beneficiary to a family member: a sibling, parent, child, first cousin, niece or nephew, in-law, spouse, or yourself. No tax is due.
- Use it for a trade. Apprenticeships, trade schools and recognized credentials all qualify.
- Pay student loans of the beneficiary or a sibling, up to $10,000 each.
- Roll some into a Roth IRA for the beneficiary (rules below).
- Withdraw it. Earnings are taxed plus 10%. The 10% is waived after the beneficiary’s death or disability, up to the amount of tax-free scholarships, or for attendance at a US military academy.
The 529-to-Roth IRA rollover rules
| Account age | The 529 must have been open more than 15 years |
| Which money | Only contributions (and their earnings) made more than 5 years before the rollover |
| Yearly cap | The Roth IRA contribution limit ($7,500 for 2026), less any other IRA contributions the beneficiary makes that year |
| Lifetime cap | $35,000 per beneficiary |
| How | A direct transfer from the plan into a Roth IRA in the beneficiary’s name |
At $7,500 a year, moving the full $35,000 takes five years. If you changed the beneficiary along the way, ask the plan and a tax professional before relying on the rollover.
- How much can a 529 pay for K–12 costs in 2026? Answer: Up to $20,000 a year per student.
- How old must a 529 be before a Roth IRA rollover? Answer: Open more than 15 years.
- On a non-qualified withdrawal, which part is taxed? Answer: Only the earnings, plus a 10% additional tax unless an exception applies.
- Can a 529 pay rent off campus? Answer: Yes, if the student is at least half-time, up to the school’s housing allowance.