Piggy bank wearing small graduation cap next to money jar with 529 Plan label

Everything Parents Need to Know Before Opening a 529 College Savings Plan

529 plans are a common way for parents to save for a child’s higher education, but what exactly are they and how do you set them up? Here's what to know.

Nearly every family relies on some type of financial aid to pay for their teen’s higher education. Loans, grants, and scholarships comprise most financial aid packages, but applying for these aid options typically occurs when your student is ready to graduate high school. A 529 savings plan is a way for proactive parents to save for higher education long before their teen starts thinking about college—in fact, parents can open one of these accounts before their child even enters grade school. And parents aren’t the only ones who can open these accounts for a designated student. Anyone who’s 18 or older with a Social Security number can open an account for themselves or someone else. What a great gift from a grandparent, aunt, uncle, or godparent!

What is a 529 college savings plan?

A 529 plan is a tax-advantaged savings account specifically for education. Originally created just for post-secondary schooling, these accounts can also now be used for K–12 expenses. Funds in these accounts can cover a wide range of education-related costs—everything from textbooks to room and board to tools for attending trade school. There are two common types of 529 plans:

  • Educational savings plans: These are similar to a standard savings account. The difference is in how they’re taxed. These plans are tax-deferred, and withdrawals are tax-free if the funds are used for qualified education expenses.
  • Prepaid tuition plans: This type of plan is a way of paying future tuition expenses at a current rate—essentially “locking in” tuition at a lower cost. Some prepaid tuition plans restrict which colleges they may be used for, so be sure to inquire with schools when exploring higher education financial aid and funding options.

Educational savings plans can also be used for:

  • K–12 tuition and fees for participating schools
  • Apprenticeship program tuition, fees, and materials
  • Student loan repayments
  • Computers and other technology needs while enrolled in school
  • Accessibility education-related equipment for students with disabilities

Related: How to Avoid College Debt Before It Starts: Savings Tips for Parents

Rules and regulations

529 plans are administered by all 50 states and the District of Columbia. The rules and regulations, including taxation, are different for these accounts in each state. You can contribute any amount to your beneficiary’s 529 account each year, but be aware that some states have a cap on how much you can contribute overall. Even if the beneficiary takes a gap year or decides not to go straight to college after high school, they can still utilize their 529 account when they’re ready to attend; there’s no time limit on when it can be used.

How to open a 529 plan

A broker or financial advisor can handle the process of opening an account for you and your student. These professionals act as intermediaries between you, the client, and the state. They can help interpret the financial jargon that comes with opening a new financial account and, of course, answer any questions you may have.  

Related: 4 Tips for Families to Maximize College Affordability

Benefits of 529 plans

There’s no question about it—college is expensive. The most obvious benefit to a 529 plan is the security of knowing your student will be set for college. While money in a 529 plan can only be used for education-related expenses, this is a broad category. If you’re worried about paying for things like books or a new computer for your child, you can rest a little easier. Think of it as an extra financial cushion that can cover a wide range of necessities. However, there are tons of other benefits:

  • Ease of setup: A trusted financial advisor can take care of setting up and managing the account for you. They can also advise you on when to add to the account, when to withdraw, and any other relevant issues. You’ll receive a monthly statement just as you would with a standard savings account, so you can track your deposits and withdrawals throughout the life of the plan.
  • Flexibility: There are 529 college savings plans available regardless of which state you live in. However, be aware that the rules for these accounts are different for each state. If you move, speak with a financial advisor in your new state about your account and how it may change.
  • Tax-free withdrawals: Unlike savings bonds or other types of funding, there are no federal income tax implications for withdrawing money from a 529 account if you’re using the funds for education-related expenses. Some states don’t even tax withdrawals; this is something to ask your financial advisor.
  • Tax-free contributions: There are no fees or tax-related expenses for depositing funds into this type of account.

Drawbacks to 529 plans

There’s no “one size fits all” approach to 529 accounts. Each state has their own rules and regulations, so depending on where you live, your account might be different from the account of a friend or relative in another state. You need to be prepared for the guidelines that come attached. As stated before, 529 plans are only for education-related expenses, so if you’re short on cash or an unforeseen emergency pops up, you can’t dip into this account to cover those costs.

Related: How to Pay for College When Your 529 Plan Takes a Hit

College is expensive, but there are ways to start saving for education long before your student starts looking at schools or filling out applications. A 529 plan can give you some peace of mind and the extra financial resources to help them reach their educational goals.  

In the end, you may find yourself with more college savings than you expect. Come back to our article on Smart Things You Should Do With Excess 529 Funds if you’re one of the lucky ones!

Like what you’re reading?

Join the CollegeXpress community! Create a free account and we’ll notify you about new articles, scholarship deadlines, and more.

Join Now


About Sara Karnish

Sara Karnish is a freelance writer based in Pennsylvania. 


Join our community of
over 5 million students!

CollegeXpress has everything you need to simplify your college search, get connected to schools, and find your perfect fit.

Join CollegeXpress
Kory Gilbertson

Kory Gilbertson

High School Class of 2022

CollegeXpress has helped me explore my views on college in that "why do I wanna go to a certain school" way. It’s helped me explore the best fits in all of these outstanding choices. All these college admission counselors can access my accolades showing them how I could help their college. This source of information helps me show these admission directors who I am and what I'm interested in. Thanks to this platform, my experience for education will be better than most, and I'm so grateful for all that it has provided for me.

Sonny Harris

Sonny Harris

College Student

For the entire year before college, I spent a lot of time deeply considering what major I wanted to go into and how to fund my higher education. After a lot of research, I came across CollegeXpress, which helped me ultimately find a ton of scholarships for which I could apply—and some of which I received! If it weren’t for CollegeXpress, I may not have found those scholarships as they didn't appear on any other scholarship search forum. Additionally, I learned more about the options I had been considering for my major through CollegeXpress’s resources. In the end, I chose to major in Computer Science, as it seemed best suited to me and the careers in the field seemed enjoyable, and I've never been more excited to move into my future! Ultimately, I want to thank CollegeXpress for offering their services. I received enough financial aid in scholarships to fund my entire freshman year of college and even got some money refunded which I used to purchase a new laptop, and I bought all of the books I needed for the semester!



High School Class of 2019

My college search began at CollegeXpress. Due to this helpful tool, I was able to gather a lot of information to guide my college planning decisions. Through CollegeXpress, I was also able to apply to several scholarships to help pay for my tuition. I would definitely recommend this website to anyone who wants to explore colleges and get more information from admission experts, counselors, and real students.

Alexandra Adriano

Alexandra Adriano

$2,000 Community Service Scholarship Winner, 2016

I've used CollegeXpress quite a bit as a senior, particularly for colleges and scholarships, so it's been a very big asset in that respect! I would recommend it to anyone looking to pursue a college education, especially seniors! This scholarship will help me achieve my goals in ways I couldn't have before, and I know that there are opportunities like that for everyone on the website and in the magazines!

Samantha Fils-Aime

Samantha Fils-Aime

High School Class of 2019

I love that CollegeXpress has helped me find some scholarships to apply for but also helped me succeed in school with lots of tips. I also really like how they consistently email me about webinars that teach me a lot of things from the comfort of my home!

College Matches

Colleges You May Be Interested In

Nelson University

Waxahachie, TX

Moody Bible Institute

Chicago, IL

Evangel University

Springfield, MO