529 Plans: Tax-Free Growth for Education Costs
Federal tax-free growth for education, plus a state deduction in many states, with real flexibility if plans change.
At a glance
Figures checked 1 Sep 2026
What to take away
- You can use any state's plan, but the deduction usually requires using your own state's.
- Qualified expenses include tuition, fees, books, equipment and reasonable room and board.
- Unused funds can change beneficiary to another family member.
A 529 plan grows free of federal tax when used for qualified education expenses. Around two-thirds of states add their own deduction or credit, which is often the strongest argument for using the in-state plan even if its fees are slightly higher.
What counts
- Tuition and required fees at eligible institutions.
- Books, supplies and required equipment including a computer.
- Room and board within the school’s published allowance, for students enrolled at least half time.
- Limited amounts for K–12 tuition and for registered apprenticeship costs.
- A lifetime limit toward qualified student loan repayment.
If the money is not needed
You can change the beneficiary to a sibling, cousin, parent or the account owner. Non-qualified withdrawals are taxed on the earnings portion plus a 10% penalty, with exceptions for scholarships up to the scholarship amount. Rules also now permit limited rollovers to a Roth IRA for the beneficiary, subject to conditions and holding periods.
Assets in a parent-owned 529 are assessed relatively lightly in federal financial aid calculations. Grandparent-owned accounts have been treated differently at various points — check current rules before restructuring ownership.
Common questions
Yes. The plan's home state does not restrict where the student enrols.
For education costs, usually, because the growth is untaxed and many states add a deduction.