Common questions about 529 plans
Head of Education Savings, J.P. Morgan Asset Management
Many investors aren’t up to speed on 529 savings plans. It’s important to debunk common myths that can cause parents, grandparents, aunts and uncles to miss out on the potential tax savings and college planning benefits.
What is a 529 plan?
Let’s quickly debrief before we debunk. Named after Section 529 of the U.S. tax code, 529 plans are sponsored by individual states but are generally open to everyone. In most cases, you can invest in any state’s plan and use the money at any accredited college throughout the country as well as many institutions overseas.
Here’s how it works: You open an account and name any child or adult as a beneficiary. Contributions are made with after-tax dollars. Investment earnings aren’t taxed while in your account, and withdrawals are tax-free when used to pay qualified education expenses. Because your earnings grow tax-deferred, your account has the potential to grow faster for a loved one’s future. That’s a huge benefit.
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“If I think I’ll get financial aid, do I need a 529?”
One of the biggest misconceptions around saving for college is that all financial aid is “free money.” The reality is that very few students receive enough grant and scholarship money for a free ride to college.
A 529 plan can help fill funding gaps while easing the heavy burden of college debt. The more you save in a 529 plan now, the less you may have to borrow later, especially if you contribute regularly, stay invested for the long run and fund the account while your child is young.
“Will I lose my money if a student doesn’t go to college or get a scholarship?”
The money is still yours, no matter what happens. If a student doesn’t attend college or didn’t spend the whole account, you have the flexibility to transfer it to another family member. Other options include:
- Use funds for private elementary or high school: Up to $10,000 toward tuition can be withdrawn per student each year without federal taxes; state tax rules vary by 529 plan.
- Keep the account in the original beneficiary’s name: Money can go toward college or graduate school later in life, or it could be transferred to the next generation when the beneficiary has a child.
- Make a non-qualified withdrawal: If you want the money back, you will owe taxes and a 10% penalty only on any investment gains. The dollars you put in are never taxed or penalized when taken out.
- Roll over up to $35,000 into a Roth IRA for the 529 account beneficiary: Roll over up to the annual contribution limits for a Roth IRA. No income limits apply. The account must have been open at least 15 years, and contributions made during the prior five years are not eligible for rollover.
- Roll over funds to an ABLE account: If your child has a disability, you can now permanently roll over 529 funds to an ABLE account tax-free, expanding the range of qualified disability-related expenses beyond just education.
“If I think I’ll get a college scholarship, do I need a 529 plan?”
You could use a 529 plan to pay qualified expenses not covered by the scholarship. You can also make non-qualified withdrawals equal to the scholarship amount without penalties, though income taxes would still apply to any earnings you withdraw.
“Can you only use a 529 plan to pay for college tuition?”
Not true. Qualified higher education expenses include tuition, fees, room and board, books, supplies, computers, internet access and services for special-needs students. And it’s not just at four-year universities, but also community colleges, graduate schools and vocational/trade schools.
The One Big Beautiful Bill Act also significantly expanded what counts as qualified expenses. Starting in July 2025, you can now use 529 funds tax-free for a much broader range of workforce training and credential programs, including professional licensing exams, trade school certifications and continuing education requirements for careers like plumbing, cosmetology, financial planning and many others.
For K-12 expenses, the rules have also expanded beyond just tuition. You can now use 529 funds for books, online learning materials, tutoring by qualified instructors, standardized test fees, dual enrollment courses and educational therapies for students with disabilities. Starting in 2026, the annual limit for K-12 expenses doubles from $10,000 to $20,000.
More good news: The Secure Act 2.0 expanded tax-free withdrawals to cover qualifying apprenticeship programs and student loan payments, up to a lifetime maximum of $10,000 for each account beneficiary and sibling. The details vary depending on the state, so be sure to check your state’s rules.
The bottom line
What’s most important is to have a plan. Start by looking at how college fits in with your other financial goals and your family’s overall budget. How much will college cost? How much are you comfortable paying? How much do you need to invest each month to get there? If you don’t think you can cover all the costs, your plan should also include other funding options like financial aid, loans or family gifts.
Don’t let myths stand between you and college. Use our resources to make informed decisions and have a positive impact on a student’s life. Consider reaching out and speaking to a J.P. Morgan advisor to help you navigate market volatility and request a personalized goals-based strategy to help you achieve your education goals. An advisor can also help you with your investment selections.
Frequently asked questions about 529 plans
Contributions to a 529 are not typically federally tax-deductible, though their growth is generally tax-deferred, and withdrawals for qualified education expenses are tax-exempt. Tax benefits can vary by state. Check your state’s 529 policy and consult a qualified tax professional for more information.
Opening a 529 plan typically involves selecting a plan through the state’s 529 program or a financial advisor, completing an application and making an initial contribution. The specific steps can vary by state, so it’s advisable to consult your state’s specific 529 plan guidelines or a financial advisor for more tailored guidance.
The account holder, often a parent or guardian, maintains control of the 529 plan. The account holder is solely responsible for deciding how the funds are invested or making withdrawals for the plan’s beneficiary.
529 plans typically don’t have annual contribution limits but carry lifetime aggregate limits that differ by state. Large contributions may also trigger gift tax implications, as 529 contributions are generally considered to be gifts for federal tax purposes. For specific limits and tax guidance, consult a financial advisor and your state’s 529 guidelines.
529 plan contribution rules vary by state, but generally, U.S. residents with a Social Security Number (SSN) or a Taxpayer Identification Number (TIN) can open and contribute to a 529 plan. The account holder manages the account, but friends and family may also contribute. Many plans offer flexible payment options like direct deposits, checks and even gift cards to make contributions more convenient.
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Head of Education Savings, J.P. Morgan Asset Management
