An Overview of 529 Plans

Saving for College
An Overview of 529 Plans

As families invest their savings in preparation for their children's future K-12 or college tuition and expenses, 529 college savings plans can provide various tax and financial benefits. These benefits make 529 plans an essential tool for most college savings strategies.

Most states offer two types of 529 Plans.

  1. College savings plans
  2. Prepaid tuition plans

Nearly every state in the U.S. offers one or more 529 plan. Further, you can use the funds invested in a 529 at any one of more than 6,000 eligible colleges and universities located throughout the country.

Some private universities and colleges also provide prepaid tuition programs to allow parents to pay all or a portion of their child's tuition at locked-in rates over time and in advance. However, these plan types do not enjoy the same tax benefits as 529 plans.

Fees and Expenses

According to the United States Securities and Exchange Commission (SEC), fees vary widely from one 529 plan to the next. Therefore, it is best to research these plans as those fees will impact the returns on your investment and, ultimately, the amount of money that will be available for your child to attend college when the time comes.

Prepaid Tuition Plans

Most prepaid tuition plans charge an enrollment or application fee with ongoing administrative expenses. The better you understand the terms and costs, the better you can determine whether it will be the right choice for your needs.

Education Savings Plans

There are plenty of fees you might need to pay with your 529 saving plan. They may include any of the following:

  • Enrollment or application fees
  • Account maintenance fees (often assessed annually)
  • Program management fees
  • Asset management fees
  • Investment fees
  • Redemption fees
  • Ongoing distribution fees

These fees will vary according to your state's regulations and the type of account you choose for your 529 saving plan.

Work closely with a trusted advisor to better know the fees associated with 529 plans in your state and how those fees may impact the final amount you have to contribute to your child's education.


The funds you contribute to 529 plans are not eligible for federal income tax deductions. However, interest is tax-free, so long as withdrawals pay for qualifying educational expenses. Most states, though—30 of them at the time of writing—offer state income tax deductions or tax credits for contributions on 529 plans.

While the money you invest in a 529 plan is yours, and you can remove it at any time, you may have to pay income taxes on the earnings gained as well as additional penalties, some up to 10 percent.

Currently, only 9 states offer prepaid tuition plans. They include:

  • Florida
  • Maryland
  • Massachusetts
  • Michigan
  • Mississippi
  • Nevada
  • Pennsylvania
  • Texas
  • Washington

All 50 states offer a 529 savings plan. Interestingly, there are no income restrictions for participating in these plans. Individuals can make annual contributions of $17,000 to a 529 program in 2023 without incurring any gift tax repercussions from the IRS. The IRS evaluates and adjusts this limit each year. Limits are individually based, meaning both you and your spouse may make contributions of $17,000 each year. You can give more provided that you pay the appropriate taxes on the gift.

An IRS 'five-year' rule does allow individuals to make a lump-sum gift of up to $85,000 without incurring gift taxes. However, you must spread that contribution over five years.

529 plans can be a helpful estate tax planning tool for a grandparent. They allow you to gift funds to grandchildren, sheltering them from estate taxes while ensuring that the funds go towards their grandchild's education.

The 529 savings plan offers greater flexibility and may be spent on a variety of things, including:

  • Tuition
  • Mandatory Fees
  • Books
  • School Supplies
  • Equipment
  • Computers
  • Internet access
  • Room
  • Food

The last two require students to attend school on a half-time basis, at least, and attend schools eligible for participation in the 529 programs.

Prepaid tuition plans have rules that vary by state and program but typically cover tuition and mandatory fees for education (and exclude things like housing, food, and other room and board items).

Impact on Financial Aid

Each state has its own rules for treating funds held in 529 accounts when determining assets and financial aid eligibility. In most cases, however, participation in a 529 plan does affect your child's eligibility for specific need-based financial aid. Also, having funds in a 529 account may impact the fitness of your younger children to receive tuition assistance for private school tuition.

Now that you know more about 529 plans and the options available to you, you can make informed decisions about which, if any, of these programs best meet the financial and educational needs of your family.

Information presented in the Financial Advice website is provided for educational purposes only and is not related to Ameris Bank's actual products or services. Ameris Bank makes no representations as to the accuracy, completeness or specific suitability of any information presented. Information provided should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. Ameris Bank recommends you consult a professional for any specific guidance you are seeking.