Qualified Tuition Programs 101: The Tax Benefits Of 529 Plans

Cassidy Jakovickas

May 15, 2024

Saving for education can be a daunting task, but a Qualified Tuition Program (QTP) offer a smart, tax-advantaged way to invest in your future or the future of your loved ones. Whether you’re saving for a child’s college expenses, your own educational goals, or even private K-12 tuition, QTPs provide a flexible and powerful tool to help you reach your savings targets. This guide will explain how QTPs, also called 529 plan after IRS Revenue Code Section 529, let you prepay for certain educational expenses. 

What is a 529 plan and how does it work? 

A 529 plan is a tax-advantaged investment account designed to help families save for educational expenses for kindergarten through graduate school. Details about eligibility and tax benefits each state’s qualified tuition program vary by state, but anyone can open up a 529 account for a future or current student. Contributions to the 529 account grow on a tax-deferred basis until it is withdrawn. 529 plan distributions can be used for qualified educational expenses.

Comparing differences between 529 plans

A 529 Prepaid Tuition Plan lets you purchase credits or units at participating colleges and universities for future tuition and mandatory fees at current prices. Prepaid tuition plans are typically sponsored by state governments and have residency requirements. They offer less flexibility than college savings plans but provide a hedge against future tuition increases. You can make payments into your 529 prepaid tuition plan in a few different ways:

  • In a lump sum or upfront payment
  • On a five-year payment plan
  • In fixed monthly payments

On the other hand, a 529 Savings Plan lets you invest in a portfolio of mutual funds, ETFs, or other investments. The account’s value is based on the performance of the underlying investments. College savings plans offer more flexibility in terms of contribution amounts and investment options. You can either choose a direct-sold plan or -advisor-sold plan.

  • A Direct-Sold 529 Savings Plan is sold directly by a state or financial institution. If you enroll in this plan, you must manage your investments yourself.
  • An Advisor-sold 529 plan is offered through an investment firm and charges a fee to manage your 529 plan investments for you.

Comparing benefits and drawbacks of 529 plans

If you’re trying to decide whether you should introduce 529 plans into your tax planning, here is a rundown of the benefits and drawbacks of 529 plans to keep in mind.

The benefits of using a 529 plan

529 plans offer several significant benefits that make them an attractive option for families saving for education expenses: 

  • Tax-deferred growth: 529 plans offer tax-deferred earnings growth, meaning you avoid federal and state income taxes on gains.
  • Tax-free withdrawals for qualified expenses: You can withdraw money from a 529 account tax-free when it is used for qualified education expenses like tuition, fees, room and board, books, and supplies.
  • Flexibility in beneficiary changes: If you’d like to change the beneficiary of a 529 plan to another eligible family member, you can do so without incurring taxes or penalties.
  • Potential state tax deductions or credits: Many states offer tax deductions or credits for 529 plan contributions, providing an extra incentive to save for education costs and reducing your overall tax liability.
  • Low impact on financial aid eligibility: 529 plans owned by parents or dependent students are considered parental assets, with only 5.64% of the account’s value assessed in the Expected Family Contribution (EFC) calculation, compared to 20% for student-owned assets, potentially resulting in a lower impact on need-based financial aid eligibility. 

In addition to these benefits, 529 plans have high contribution limits, allowing families to save substantial amounts for education expenses. The combination of tax advantages, flexibility, and minimal impact on financial aid makes 529 plans a powerful tool for education savings. 

Are there any drawbacks to 529 plans?

Some considerations to keep in mind about 529 plans are:

  • You may have limited investment options if you hoose a 529 Savings plan.
  • Fees for 529 plan participation vary by state.
  • You may encounter restrictions when trying to switch investments.
  • Withdrawals must be used for qualified education expenses.

How do you open and contribute to a 529 plan? 

Opening and contributing to a 529 plan is a straightforward process: 

  • Decide which type of 529 account is right for you: 529 Prepaid Tuition Plan or 529 Savings Plan
  • Name your beneficiary: This individual can be an infant or high school student.
  • Research each state’s residency and attendance requirements: Although you can enroll in the 529 plan of a state other than your home state, take time to learn about each state’s 529 plan state residency requirements, fees, maximum contributions, and tax benefits.
  • Select your investment portfolio: If you’ve chosen a direct-sold 529 savings plan, you want to build your investment portfolio. Or you can choose a advisor-sold savings plan and have an investment professional manage it for you for a management fee.

Make contributions to your 529 account: Regular contributions are essential if you plan to receive the most tax benefits from your 529 account. Most accounts let you set up paycheck deductions and auto-pay so you can “set and forget” recurring transfers from your bank account. Be sure to take full advantage of your 529 plan’s contribution limits.

What are the investment options within a 529 plan? 

When you open a 529 plan, you’ll have the opportunity to choose from a variety of investment options. The specific options available will depend on the plan you select, but most plans offer a combination of the following: 

  • Age-based portfolios
  • Static portfolios
  • Individual mutual funds or exchange-traded funds

Your risk tolerance, which is your ability and willingness to withstand market fluctuations, will play a significant role in your investment decisions. Generally, younger beneficiaries have a longer investment horizon and can afford to take on more risk, as they have more time to recover from market downturns. As the beneficiary nears college age, a more conservative approach may be appropriate to preserve capital. 

What expenses qualify for tax-free withdrawals from a 529 plan? 

One of the primary benefits of 529 plans is the ability to make tax-free withdrawals when the funds are used for qualified education expenses. The following expenses are generally considered qualified and are eligible for tax-free withdrawals: 

  • Tuition and required fees for enrollment or attendance at an eligible educational institution, including undergraduate, graduate, and professional degree programs. Expenses for dual enrollment programs, where a student attends two educational institutions simultaneously, may also qualify. 
  • Campus housing costs are also eligible, but they are limited to the room and board allowance set by the educational institution in its cost of attendance for federal financial aid purposes.  For students enrolled at least half-time, room and board expenses can be covered by tax-free 529 withdrawals. 
  • Books, supplies, and equipment: This includes textbooks, lab supplies, and other materials required for enrollment or attendance at an eligible educational institution. 
  • Equipment, such as calculators or art supplies, that are necessary for specific courses. 
  • Computer and internet access: The purchase of a computer, peripheral equipment (such as a printer), software, and internet access are considered qualified expenses if they are used primarily by the beneficiary while enrolled at an eligible educational institution. These expenses are eligible even if they are not required by the school. 
  • Special needs expenses: For beneficiaries with special needs, certain expenses related to their condition may be considered qualified if they are incurred in connection with enrollment or attendance at an eligible educational institution. Examples include assistive technology, transportation, and personal assistance services. 

It’s important to note that the expenses must be incurred by the beneficiary during the years they are enrolled at an eligible educational institution. Withdrawals used for non-qualified expenses will be subject to federal income tax and a 10% penalty on the earnings portion of the withdrawal. Some states may also impose taxes and penalties on non-qualified withdrawals. 

Keep detailed records of your expenses and match them with withdrawals from your 529 plan. Consult with a tax professional if you have questions about the eligibility of specific expenses or need guidance on reporting withdrawals on your tax return. 

What happens if the beneficiary doesn’t use the funds or receives a scholarship? 

If the beneficiary decides not to pursue higher education or receives a scholarship that covers a portion of their expenses, you have several options for managing the remaining funds in your 529 plan: 

  • Change the beneficiary: You can change the beneficiary of the 529 plan to another eligible family member, such as a sibling, cousin, or even yourself, without incurring taxes or penalties. 
  • Save for graduate school:  If the beneficiary completes their undergraduate degree and plans to pursue graduate or professional studies, you can keep the remaining funds in the 529 plan to cover future education expenses like graduate school tuition, fees, and other qualified expenses in the same way as for undergraduate studies. 
  • Withdraw funds with a penalty:  If you decide to withdraw funds from the 529 plan for non-qualified expenses, you’ll be subject to federal income tax and a 10% penalty on the earnings portion of the withdrawal. The principal portion of your withdrawal (your original contributions) will not be taxed or penalized, as contributions are made with after-tax dollars. Some states may also impose taxes and penalties on non-qualified withdrawals. 

Scholarship exception to the withdrawal penalty

If the beneficiary receives a scholarship, fellowship, grant, or other tax-free educational assistance, you can withdraw an amount equal to the scholarship from the 529 plan without incurring the 10% federal penalty. However, you’ll still be subject to income tax on the earnings portion of the withdrawal. 

To qualify for the scholarship exception:

  • The withdrawal must be made in the same year that the scholarship is received
  • The funds must be used for qualified education expenses

If the scholarship covers the full cost of attendance, you may consider changing the beneficiary or saving the remaining funds for future education expenses. 

It’s important to note that the scholarship exception only applies to the 10% federal penalty. Some states may still impose a penalty on scholarship-related withdrawals, so it’s important to check your state’s specific rules. 

How do 529 plans compare to other college savings options? 

When saving for college, there are several options available in addition to 529 plans. Each option has its own advantages and limitations. Let’s compare 529 plans to some other popular college savings options: 

Coverdell Education Savings Accounts (ESAs) 

Contributions to ESAs are limited to $2,000 per year per beneficiary, while 529 plans have much higher contribution limits. ESA funds can be used for K-12 expenses in addition to college costs, whereas 529 plans are primarily designed for college savings (with a limited exception for K-12 tuition). Income restrictions apply to ESA contributions, while 529 plans have no income limitations. Investment options in ESAs are typically broader than those in 529 plans. 

Roth IRA

Roth IRAs are primarily designed for retirement savings, but they can be used for college expenses without incurring the 10% early withdrawal penalty. Contributions to a Roth IRA are limited to $6,000 per year ($7,000 if age 50 or older) and are subject to income restrictions. Roth IRA contributions can be withdrawn tax-free and penalty-free at any time, but earnings may be subject to taxes and penalties if withdrawn before age 59½ and before the account has been open for five years. Roth IRAs offer a wide range of investment options compared to 529 plans. 

UGMA/UTMA accounts

UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) accounts are custodial accounts that allow you to transfer assets to a minor. These accounts are not specifically designed for college savings and do not offer the same tax advantages as 529 plans. 

The assets in UGMA/UTMA accounts are considered the property of the child and may have a significant impact on financial aid eligibility. Once the child reaches the age of majority (18 or 21, depending on the state), they gain full control of the assets and can use them for any purpose. 

Savings bonds

Certain U.S. savings bonds, such as Series EE and Series I bonds, can be used for college expenses without incurring federal income tax on the interest earned, subject to income limitations. The tax benefits of savings bonds are less comprehensive than those of 529 plans, and the contribution limits are much lower. Savings bonds offer a low-risk, low-return investment option and lack the flexibility and investment choices of 529 plans. 

What are some common misconceptions or mistakes to avoid with 529 plans? 

While 529 plans offer numerous benefits for college savers, there are some common misconceptions and mistakes that individuals should be aware of to make the most of their savings: 

  • Not starting early enough:  One of the biggest mistakes people make is waiting too long to start saving for college. The earlier you begin contributing to a 529 plan, the more time your investments have to grow and compound. Even small contributions made regularly over a long period can have a significant impact on your savings thanks to the power of compound interest. Starting early also allows you to weather market fluctuations and potentially take advantage of market upswings. 
  • Overlooking the impact of fees on returns:  All 529 plans have associated fees, such as administrative fees, investment expenses, and management fees. These fees can vary widely between plans and can eat into your investment returns over time. When comparing 529 plans, it’s essential to look beyond just the investment options and consider the total cost of ownership. High fees can significantly reduce your net returns, so choosing a plan with competitive fees is crucial. Keep in mind that lower fees don’t always equate to better performance, so strike a balance between cost and investment quality when selecting a plan. 
  • Failing to adjust investments as the beneficiary ages:  As the beneficiary gets closer to college age, it’s important to adjust your investment strategy to reduce risk. Many 529 plans offer age-based portfolios that automatically shift to a more conservative allocation as the beneficiary nears college. If you’ve chosen a static portfolio or individual funds, you’ll need to take a more hands-on approach to adjust your investments over time. Failing to do so could leave your savings vulnerable to market downturns just when you need the funds for college expenses. Regularly review your investment mix and make adjustments as needed to ensure your 529 plan aligns with your risk tolerance and time horizon.
  • Not researching state-specific benefits or limitations:  Each state’s 529 plan has its own unique features, benefits, and limitations. Some states offer generous tax deductions or credits for contributions to in-state plans, while others have residency requirements or limited investment options. Before choosing a 529 plan, research the specific benefits and rules for your state’s plan and compare them to out-of-state options. In some cases, the tax benefits of an in-state plan may outweigh the advantages of an out-of-state plan with better investment choices. Also, be aware of any state-specific limitations on qualified expenses, contribution deadlines, or withdrawal restrictions that could impact your savings strategy. 

How do 529 plans affect financial aid eligibility? 

When it comes to financial aid, the impact of 529 plans depends on who owns the account and how the assets are treated in the Expected Family Contribution (EFC) calculation. 529 plans owned by a parent or dependent student are considered parental assets for federal financial aid purposes. This means that a maximum of 5.64% of the account’s value is included in the EFC calculation. For example, if a parent has $10,000 in a 529 plan, only $564 would be considered in the EFC calculation, which may have a minimal impact on financial aid eligibility. In contrast, assets held in the student’s name (such as in a UGMA/UTMA account) are assessed at a rate of 20% in the EFC calculation, which can significantly reduce financial aid eligibility. 

Differences between parent-owned and grandparent-owned 529 plans 

Parent-owned 529 plans are treated as parental assets and have a relatively low impact on financial aid, as described above. 

Grandparent-owned 529 plans, on the other hand, are not reported as assets on the Free Application for Federal Student Aid (FAFSA). However, when distributions are made from a grandparent-owned 529 plan to pay for college expenses, the withdrawals are considered untaxed income to the student on the following year’s FAFSA. 

This untaxed income can reduce the student’s eligibility for need-based financial aid by as much as 50% of the distribution amount. For example, if a grandparent takes a $10,000 distribution to pay for the student’s college expenses, the student’s aid eligibility could be reduced by up to $5,000 the following year. 

To minimize the impact of grandparent-owned 529 plans on financial aid, one strategy is to delay distributions until the student’s junior or senior year of college. This is because the FAFSA uses prior-prior year income, so distributions taken later in the student’s college career will not affect financial aid eligibility. 

Are 529 plan distributions taxable? 

The IRS addresses this question in Tax Topic 313 when it states, “Distributions aren’t taxable when used to pay for qualified higher education expenses (including tuition at an elementary or secondary public, private, or religious school). However, if the amount of a distribution is greater than the beneficiary’s qualified higher education expenses (including tuition at an elementary or secondary public, private, or religious school), a portion of the earnings is taxable.” 

It means that distributions are only taxable if they exceed the amount of qualified higher education expenses. In this scenario, the portion exceeding the amount of qualified expenses is taxable. 

Can you use 529 funds for non-traditional educational paths? 

Yes, IRC Section 529(e)(5) clarifies that 529 account distributions can be used for a variety of non-traditional educational paths like vocational schools or other educational institutions, as long as the institution or program is described in Section 481 of Higher Education Act of 1965 and is eligible to participate under Title IV of this Act. Here are some highlights:

  • 529 funds can be used to pay for tuition, fees, and other qualified expenses at vocational and trade schools that are accredited and eligible to participate in federal student aid programs. 
  • Examples of eligible vocational and trade schools include automotive technician schools, cosmetology schools, culinary institutes, and medical assistant programs. 
  • To ensure that a specific vocational or trade school is eligible, check with the school’s financial aid office or consult the Department of Education’s Federal School Code List. 

Apprenticeship programs 

IRC Section 529(c)(8) states that 529 distributions can be used to pay for expenses related to registered apprenticeship programs. As with other qualified educational programs, eligible expenses include tuition, fees, textbooks, supplies, and equipment required for the apprenticeship program. Also, the apprenticeship program must be registered and certified with the U.S. Department of Labor. 

Online courses and certifications

529 funds can be used to pay for online courses and certifications offered by eligible educational institutions. Eligible expenses include tuition, fees, and required course materials for online courses that are part of a degree or credential program at an accredited college or university. 

Non-degree courses, such as professional development or personal enrichment classes, may also be eligible if they are offered by an accredited institution and meet certain requirements. 

It’s important to verify that the online course or certification program is offered by an eligible institution before using 529 funds to pay for expenses. 

What are the rules for using 529 funds for K-12 education expenses? 

With the passage of the Tax Cuts and Jobs Act of 2017, the rules for 529 plans were expanded to allow funds to be used for K-12 education expenses in addition to college costs. However, there are some limitations and state-specific rules to be aware of when using 529 funds for K-12 expenses. 

The Tax Cuts and Jobs Act of 2017 amended the federal tax code to allow 529 plan funds to be used for tuition expenses at elementary or secondary public, private, or religious schools. This change applies to distributions made after December 31, 2017. Under the new rules, up to $10,000 per student per year can be withdrawn tax-free from a 529 plan to pay for K-12 tuition expenses. 

Limitations on 529 plans and qualified tuition programs in each state

While the federal tax code allows 529 funds to be used for K-12 tuition, some states have not updated their laws to conform with the federal changes. In these states, using 529 funds for K-12 expenses may trigger state income taxes and penalties. 

It’s essential to check with your state’s 529 plan administrator or a tax professional to understand the specific rules and potential consequences of using 529 funds for K-12 tuition in your state. 

Some states may also impose additional limitations on K-12 withdrawals, such as restricting the use of funds to in-state schools or requiring account owners to maintain a minimum balance in the 529 plan. 

Additionally, the $10,000 annual limit on K-12 tuition expenses applies on a per-student basis, not a per-account basis. If a student is the beneficiary of multiple 529 plans, the total annual withdrawal for K-12 tuition across all accounts cannot exceed $10,000. 

When considering using 529 funds for K-12 education expenses, it’s important to weigh the potential benefits against any state-specific drawbacks or limitations. Keep in mind that using 529 funds for K-12 expenses will reduce the amount available for future college costs, so careful planning is necessary to ensure that you are still on track to meet your college savings goals. 

As with any significant financial decision, it’s advisable to consult with a financial professional or tax advisor to help you navigate the rules and determine the best course of action for your specific situation. 

How can grandparents or other family members contribute to a 529 plan? 

Grandparents and other family members can play a significant role in supporting a child’s education by contributing to a 529 plan. There are many ways to make these contributions while also considering gift tax implications and estate planning strategies. 

  • Gift tax considerations and the annual gift tax exclusion:  Contributions to a 529 plan are considered gifts for tax purposes. As of 2021, the annual gift tax exclusion allows individuals to give up to $15,000 per recipient per year ($30,000 for married couples) without incurring gift taxes or filing a gift tax return. If a grandparent or family member contributes more than the annual exclusion amount, they can elect to spread the contribution over five years for gift tax purposes. This means they could contribute up to $75,000 (or $150,000 for married couples) in a single year without triggering gift taxes, as long as they don’t make any additional gifts to the same beneficiary during the five-year period.
  • Setting up a separate 529 plan vs. contributing to an existing one:  Grandparents and other family members have the option to set up their own 529 plan with the child as the beneficiary, or they can contribute to an existing account owned by the child’s parents. Opening a separate 529 plan allows the grandparent or family member to maintain control over the account and make investment decisions. They can also change the beneficiary to another qualifying family member if needed.  Contributing to an existing parent-owned 529 plan may be more convenient and allows the funds 

What should you consider when choosing between in-state and out-of-state 529 plans? 

When deciding between in-state and out-of-state 529 plans, there are several factors to consider to ensure that you select the plan that best fits your needs and maximizes your benefits. 

State income tax deductions or credits for contributions:  

Many states offer income tax deductions or credits for contributions made to their in-state 529 plans. These tax benefits can provide a significant incentive to choose your state’s plan. 

The value of the deduction or credit varies by state, with some states offering flat deductions, others matching a percentage of contributions, and some providing no tax benefits at all. 

If your state offers a generous tax deduction or credit, it may be advantageous to contribute to your in-state plan, even if the investment options or fees are less competitive than those of out-of-state plans. 

Keep in mind that you may need to meet certain requirements, such as minimum holding periods or contribution thresholds, to qualify for state tax benefits. 

Fees and investment options

  • 529 plans charge various fees, including administrative fees, investment expenses, and management fees. These fees can vary significantly between plans and can impact your overall returns. 
  • When comparing plans, look closely at the fee structure and calculate the total cost of ownership to ensure that you’re getting the best value for your money. 
  • Also, evaluate the investment options offered by each plan. Look for plans with a diverse range of investment portfolios, reputable fund managers, and a track record of strong performance. 
  • Some states may have limited investment options or higher fees, which could make out-of-state plans more attractive if they offer better investment choices and lower costs. 

Residency requirements and potential limitations

  • Some states may impose residency requirements for their 529 plans, meaning that you need to be a resident of the state to open an account or qualify for certain benefits. 
  • However, most states allow non-residents to open accounts and invest in their plans, although they may not be eligible for state-specific tax benefits. 
  • Additionally, some states may have limitations on the use of 529 funds, such as requiring beneficiaries to attend in-state schools or restricting the use of funds for certain expenses. 
  • Before choosing an out-of-state plan, research any potential limitations or restrictions that could impact your ability to use the funds as intended. 

Ultimately, the choice between an in-state and out-of-state 529 plan depends on your specific circumstances, including your state’s tax benefits, the fees and investment options of each plan, and any residency requirements or limitations. It’s essential to thoroughly research and compare plans to find the one that offers the best combination of benefits for your needs. 

In some cases, it may be advantageous to contribute to your in-state plan to take advantage of tax benefits while also investing in an out-of-state plan with better investment options or lower fees. Consult with a financial advisor or tax professional to help you weigh the pros and cons and make an informed decision based on your unique situation. 

How do you navigate 529 plans when the beneficiary has special needs? 

When saving for the education of a beneficiary with special needs, it’s important to consider the unique financial challenges and the potential impact on eligibility for government benefits. In addition to 529 plans, there are other savings options, such as ABLE accounts, that can help families navigate these complexities. 

How ABLE accounts can complement 529 savings plans for education

ABLE (Achieving a Better Life Experience) accounts are tax-advantaged savings accounts designed for individuals with disabilities that developed before age 26. Contributions to ABLE accounts grow tax-free, and withdrawals are tax-free when used for qualified disability expenses, such as education, housing, transportation, and medical costs. 

ABLE accounts can complement 529 savings by providing a separate pool of funds specifically for disability-related expenses, while the 529 plan can focus on educational costs. 

Balances in ABLE accounts (up to $100,000) do not affect eligibility for means-tested government benefits like Supplemental Security Income (SSI) or Medicaid, which is a key advantage for individuals with special needs. 

Should you choose a 529 plan or an ABLE account?

If the beneficiary’s disability developed before age 26 and they meet the eligibility requirements, an ABLE account may be a more suitable choice for saving, as it offers tax advantages and protects eligibility for government benefits. 

However, ABLE accounts have an annual contribution limit of $15,000 (as of 2021), while 529 plans have much higher contribution limits, making them better suited for longer-term educational savings. 

Families can consider using a combination of both accounts – an ABLE account for disability-related expenses and a portion of a 529 plan for educational costs, including:

  • Assistive technology, adaptive equipment, and specialized instructional materials. 
  • Tutoring services, educational therapies (e.g., occupational therapy, speech therapy), and other support services required for the beneficiary’s education may also be eligible expenses. 

It’s important to note that non-educational expenses, such as medical costs or housing modifications, may not be eligible for tax-free withdrawals from a 529 plan. 

When using 529 funds for special needs expenses, keep detailed records and consult with the plan administrator or a tax professional to ensure that the expenses qualify and to avoid potential penalties. 

What are some strategies to maximize the benefits of a 529 plan? 

To make the most of a 529 plan and its tax advantages, here are several strategies that your family can employ to boost your savings and maximize the benefits for your beneficiaries. 

  • Starting early and contributing regularly:  One of the most effective ways to maximize the benefits of a 529 plan is to start saving as early as possible and make consistent contributions over time. The power of compound growth means that even small, regular contributions can add up significantly over the long term, especially if you start when the beneficiary is young. Consider setting up automatic monthly contributions from your bank account or paycheck to make saving a habit and to ensure that you’re consistently funding the 529 plan. By starting early and contributing regularly, you can potentially accumulate a substantial college fund while spreading the cost over a longer period. 
  • Taking advantage of employer matching programs, if available:  Some employers offer matching contributions to their employees’ 529 plans as part of their benefits package. If your employer provides this benefit, be sure to take full advantage of it by contributing enough to receive the maximum match. Employer matching contributions are essentially free money that can significantly boost your 529 savings without requiring additional out-of-pocket expenses. Check with your human resources department or benefits coordinator to see if your employer offers a 529 matching program and to understand the requirements for participation. 
  • Using cashback rewards or loyalty programs to earn additional contributions:  Many credit card companies, online shopping portals, and loyalty programs offer cashback rewards or points that can be redeemed for contributions to a 529 plan. By using these programs strategically for your regular purchases, you can earn extra money to fund your 529 plan without changing your spending habits. Some credit card issuers even offer specific 529 reward cards that automatically deposit cashback earnings into your linked 529 plan. Be sure to pay off your credit card balances in full each month to avoid interest charges that could negate the benefits of the cashback rewards. 
  • Encouraging family and friends to contribute in lieu of traditional gifts:  For special occasions like birthdays, holidays, or graduations, consider asking family and friends to contribute to your child’s 529 plan instead of giving traditional gifts. Many 529 plans offer gifting platforms or e-gift options that make it easy for others to make contributions directly to the account. By encouraging loved ones to invest in your child’s education, you can tap into a wider network of support and potentially increase the overall savings in the 529 plan. Be sure to communicate the importance of the 529 plan and the long-term benefits of contributing to it, as well as any specific instructions for making gifts. 

Find your state’s resources about Qualified Tuition Programs (529 plans)