May 29 is 529 Plan Day, a day to highlight the importance of these tax-advantaged college savings accounts. Here’s why they exist, how they help, and how they’ve evolved.
The college savings industry recognizes May 29 (5/29) as 529 Plan Day nationally. The day highlights the importance of these tax-advantaged accounts and how they help families pay for college and other education expenses.
Why 529 Plans Exist
With college tuition rates consistently increasing at two to three times the inflation rate each year, college graduates enter the workforce burdened with enormous student loan debt. Concerned by this, states began developing innovative programs to help individuals save for their college education.
Between 1996 and 2000, 30 states developed and launched Section 529 Plans. Today, 49 states and the District of Columbia offer Section 529 Plans to their residents, and millions of students have benefited.
You can read more about the History of 529 Plans here.
How 529 Plans Help
529 Savings Plans offer a unique combination of features that no other education savings vehicle (such as a prepaid tuition plan) can match. Read about these features and potential drawbacks of 529 Plans in our article, The ABCs of 529 Plans.
It’s also vital to understand the rules before making 529 Plan withdrawals. Making a mistake, even an honest one, can be costly, resulting in steep penalties.
How 529 Plans Have Evolved
While many rules surrounding college savings plans have remained unchanged since their inception, some have evolved. We encourage you to consult with your financial planner about any specific questions and have provided some helpful tips below.
In December 2017, the Tax Cuts and Jobs Act was signed into law, introducing several changes to the tax code. One of the more overlooked changes was the expansion of what is considered a qualified education expense. Learn How Your 529 Plan Can Help Your Grade School Kids.
In June of 2021, Government Phil Murphy signed the New Jersey College Affordability Act into law. Beginning with Tax Year 2022 (filed in 2023), the bill allows for three income tax deductions on New Jersey returns with a gross income of $200,000 or less. Here’s What You Need to Know About the NJ College Affordability Act.
Other overlooked opportunities include using a 529 Plan to pay for Trade School, Vocational School, and study-abroad programs. There are limitations to the expenses that are considered eligible, and the U.S. Department of Education must approve the host school. Read How to Use Your 529 Plan to Pay for Studying Abroad to learn more.
Recent Updates to 529 Plans, as of 2025
Several significant changes have been introduced to 529 plans in recent years:
- Roth IRA Rollovers: Starting in 2024, under the SECURE 2.0 Act, unused 529 funds can be rolled over into a Roth IRA for the beneficiary, up to a lifetime limit of $35,000. The 529 account must have been open for at least 15 years, and contributions made in the last five years are ineligible for rollover. Additionally, the beneficiary must have earned income equal to the rollover amount; annual Roth IRA contribution limits also apply. Notably, income limits for Roth IRA contributions do not apply to these rollovers.
- Expanded Qualified Expenses: Proposed legislation in 2025 aims to broaden the definition of qualified education expenses to include additional K–12 costs such as testing fees, tutoring outside the home, and educational therapies for students with disabilities.
- Contribution Limits: For 2025, individuals can contribute up to $19,000 per beneficiary annually without triggering gift tax consequences. Married couples filing jointly can contribute up to $38,000 per beneficiary. The IRS also allows a “superfunding” option, permitting individuals to contribute up to $95,000 (or $190,000 for married couples) per beneficiary in a single year, treating it as if it were spread over five years for gift tax purposes.
- Financial Aid Considerations: Under the FAFSA Simplification Act, distributions from grandparent-owned 529 plans are no longer considered in determining a student’s financial aid eligibility. Previously, such distributions were counted as untaxed student income, which could potentially reduce aid.
In Conclusion
529 Plans benefit parents who value a college education and want to save money when making financial contributions to their children’s education. Since no two plans are the same, we encourage you to research your in-state plan first to see if you’ll receive additional benefits, such as tax credits.
We hope our collection of articles helps you better understand 529 Plans and why the industry recognizes 529 Plan Day. Speak with your financial planner to help you weigh the pros and cons of different plans before making your choice.
Note: This article has been updated to reflect changes as of May 2025. For personalized advice, please consult with a financial planner.
