If you’ve ever thought 529 plans were just for parents saving for their kids’ college, think again. These state-sponsored tax-advantaged accounts are open to anyone, whether you’re saving for your child, a niece or nephew, or even yourself. And then anyone can contribute to that account, not just you.
Thanks to the new rules that kicked in last year, they’ve become even more flexible and valuable than ever. We’ll break down how does a 529 plan work, the 529 plan contribution limits, the 529 plan tax benefits, and why this once-overlooked savings tool could be a smart money move for your long-term goals.
How Does a 529 Plan Work?
Here’s a scenario: let’s say you open a 529 for your younger brother. You contribute $200/month. The account invests the money each year. If your sibling goes to college, you can use the account to pay for tuition, books, and room & board (if eligible) because it’s a 529, and the growth and withdrawals, if used appropriately, are tax-free. It’s not just restricted to college either; it can be applied to qualified K-12 schools, including religious, trade, and vocational courses.
Ok, but what if your sibling decides college isn’t for them anymore? The rules were recently updated to accommodate this. Unused 529 funds can now, under certain conditions, be rolled over into a Roth IRA for the same beneficiary.
This update, effective in 2024, removes a major concern many people had: “What if the money never gets used for college?” Now it can still help them save for retirement!
But here’s the catch: the 529 plan must be open for at least 15 years in the same beneficiary’s name, you must have funds in there for at least 5, and you’re capped at a $35,000 lifetime rollover. Plus, you still have to respect the Roth IRA annual contribution limits; for example, it’s $7,000 in 2025.
529 Plan Contribution Limits
Let’s go over numbers so you can plan more easily.
- There’s no strict annual maximum for contributions to a 529 at a federal level, but the contributions count as gifts for gift-tax purposes. For 2024, an individual can contribute up to $18,000 per beneficiary (pr $36,000 for a married couple) without triggering gift-tax reporting. For 2025, this went up to $19,000 (or $38,000 if married filing jointly) per beneficiary.
- You can even “superfund” a 529, where you can contribute up to 5 years’ worth of that amount all at once (for example, up to $95,000 in 2025 or $190,000 if MFJ) without impacting your lifetime gift-tax exemption. By front-loading this amount, you’re giving the money more time to compound and grow tax-free.
- Each state sets its own aggregate maximum for how much a single beneficiary’s account can grow before new contributions stop. This can range from $235,000 to $620,000, depending on the state.
| State | Contribution limit |
| Alabama | $450,000 |
| Alaska | $550,000 |
| Arizona | $590,000 |
| Arkansas | $500,000 |
| California | $575,000 |
| Colorado | $500,000 |
| Connecticut | $550,000 |
| Delaware | $500,000 |
| Florida | $418,000 |
| Georgia | $235,000 |
| Hawaii | $350,000 |
| Idaho | $500,000 |
| Illinois | $550,000 |
| Indiana | $450,000 |
| Iowa | $505,000 |
| Kansas | $447,000 |
| Kentucky | $500,000 |
| Louisiana | $500,000 |
| Maine | $425,000 |
| Maryland | $500,000 |
| Massachusetts | $500,000 |
| Michigan | $500,000 |
| Minnesota | $425,000 |
| Mississippi | $235,000 |
| Missouri | $325,000 |
| Montana | $392,000 |
| Nebraska | $500,000 |
| Nevada | $500,000 |
| New Hampshire | $621,411 |
| New Jersey | $550,000 |
| New Mexico | $500,000 |
| New York | $520,000 |
| North Carolina | $540,000 |
| North Dakota | $269,000 |
| Ohio | $550,000 |
| Oklahoma | $300,000 |
| Oregon | $500,000 |
| Pennsylvania | $511,758 |
| Rhode Island | $520,000 |
| South Carolina | $575,000 |
| South Dakota | $350,000 |
| Tennessee | $500,000 |
| Texas | $500,000 |
| Utah | $574,000 |
| Vermont | $550,000 |
| Virginia | $575,000 |
| Washington | $500,000 |
| Washington D.C. | $500,000 |
| West Virginia | $550,000 |
| Wisconsin | $589,650 |
| Wyoming | $235,000 |
529 Plan Tax Benefits
Why the 529 plan is a standout:
- Contributions are made with after-tax dollars, but the growth is tax-deferred, and withdrawals are federal tax-free when used for qualified education expenses.
- Many states offer state income tax deductions or credits if you invest in your state’s plan (check your state).
- Because of the new rollover rule, if the money doesn’t get used for college/schooling, it can still go toward retirement savings tax-free for the same beneficiary (subject to limits).
For those looking at bigger life goals (saving for kids, saving for themselves, or just looking at flexible options), the rollover rule is a game-changer!
Why Everyone (Yes, You) Can Open One
You don’t need to be a parent to benefit from a 529 plan because you can open one for yourself, a friend, or even a relative, like a nephew. There’s no income limit either to get started, making it an accessible option for anyone, even early in their career. The funds are highly flexible and can be used for a wide range of schools, including out-of-state, private, public, or vocational programs. And thanks to updated rules, if the original plan shifts, like the beneficiary earns a scholarship or skips college, you can still transfer the remaining balance to a Roth IRA under qualifying conditions.
Pros & Cons: The Good & What to Watch Out For
Pros:
- Powerful tax-advantaged growth for education and potentially retirement
- Encourages consistent savings
- Opens up even if your job or income is unpredictable
- Flexible beneficiary options
- Anyone 18+ can open a 529 plan, and anyone can contribute
Cons:
- If you withdraw for non-qualified education uses (and don’t use the new rollover rules), earnings may be taxed +10% penalty
- State plans vary: fees, investment options, and state tax perks differ widely. If your state’s plan is expensive or limited, you can open a 529 in another state with better options if they don’t limit it to residents only
- The new rollover rules still have strict requirements. The account must be at least 14 years old, there are rollover caps, and the beneficiary needs earned income to qualify for the Roth IRA rollover.
- Overfunding without planning can affect financial aid, as large 529 balances might reduce eligibility for need-based grants or subsidized student loans
Should You Open One Now?
If you’re thinking ahead, looking to save for your own or someone else’s education, or you just want a flexible, tax-smart option to invest in, then yes, a 529 deserves your attention. If it’s not for your own child, double-check with the parents first to see if there’s already a plan in place. While a beneficiary can have multiple 529 plans, it’s most likely easier to manage with one.
Start small, automate a contribution, compare your state’s offerings and fees, and use a 529 plan calculator to see how your contributions could grow.
The key is to stay consistent, just like other investments.
Make sure you’ve got your own retirement foundation covered, though, like a 401(k), IRA, and emergency fund, before pouring everything into a 529.
The Money Move
A 529 plan used to mean “college fund only,” but now it’s morphed into something better. A flexible, tax-smart vehicle for education and potentially retirement. Especially when most of our lives won’t follow the traditional “go to college, get a job, stay at the job until 65” path anymore.
So yes, you can open one and probably should! A good friend of mine opened one for his 5-year-old son, and when the child’s birthday rolls around, an option to contribute to the 529 is always available alongside the usual toys/books list. Super smart!
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