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529 Account Facts and Fiction

As with all investment accounts, 529s are difficult to understand, which is partly why they are underutilized. I hope this post helps you separate fact from fiction in this overly complicated world!


What is a 529 account?

  • Short answer: A tax-advantaged way to invest money for someone's future educational needs, typically a child.

  • Long answer: Per Blackrock, "A 529 college savings plan is a state-sponsored investment plan that enables you to save money for a beneficiary and pay for education expenses. You can withdraw funds tax-free to cover nearly any type of college expense. 529 plans may offer additional state or federal tax benefits." In plain english, it's an account that allows you to invest money today to pay for qualified education expenses in the future, with tax-free money."

What if my child receives a sports scholarship?

  • Short answer: He or she won't!

Meme of kid swinging baseball bat at tee for scholarship
  • Long answer: One reason that 529s are not often funded is due to an over-reliance on the idea of a sports scholarship. Let's stop here for a dose of reality. According to the NCAA, only about 2% of high school athletes go on to play college sports, and even fewer receive athletic scholarships. In fact, only about 6% of NCAA athletes receive athletic scholarships. In other words, let's put away the hope that your child is the next great college athlete. Additionally, if your child happens to miraculously be in the 6% who receive a scholarship, he or she will likely still have "qualified educational expenses" for which the 529 can be used. Lastly, you can withdraw the scholarship amount from the 529 without incurring any penalties, but again, these are not concerns for 94% of parents!!!!

What if my child doesn't attend college?

  • Short answer: He or she likely will, as 70% of high school graduates in the United States attend college. Additionally, some high school graduates will attend a different educational program, such as a trade school.

  • Long answer: Let's discuss trade schools for a minute. If your child would be better served being an electrician, plumber, carpenter, etc., your 529 may be used to cover the expenses for fees, books, supplies, and equipment as part of a registered apprenticeship program.

What if I have two children, do I need two accounts?

  • Short answer: You don't need two accounts, but you should have two accounts.

  • Long answer: 529s allow you to change beneficiaries of the account. In other words, you can have a single 529 account for both children and then change the beneficiary when the oldest is out of college. The reason that you should have two accounts is that their age should dictate the appropriate investment. In other words, if there is a 10-year age gap between your children, then the younger child should be invested more aggressively than the older one.

Should I use my state's plan?

  • Short answer: It depends, but generally yes!

  • Long answer: Most states provide a tax deduction for contributions to their plan. In other words, if you live in MA and contribute to the MA state 529 plan, then you receive a tax deduction. This added bonus is generally enough to choose this option. Below is a list of the current state deductions (source: Bankrate):

529 State Tax Deductions

What if there is leftover money in the account?

  • Short answer: There likely won't be! The average 529 balance is $25,903 and the average cost of a private college is $39,723 per year. Stop worrying about what's not likely to happen!

  • Long answer: On the rare chance that there is leftover money in your 529 you still have plenty of options, some of which are pretty great:

    1. Do nothing: Your child may want to attend graduate school or change careers later in life. Any additional 529 funds may be used to pay for a program that will qualify him or her for new trade or business. So when you adult child, who is a teacher, wants to be an accountant, these funds may still be used!

    2. New beneficiary: Assign the money to a new beneficiary, such as another child, grandchild, yourself, or your spouse and use it for qualified educational expenses.

    3. Roth conversion: Starting in 2024, 529 account holders will be able to transfer up to $35,000 to a Roth IRA for the beneficiary. In other words, if you have $35,00 remaining in your 529 account after little Timmy graduates, you can role that money into a Roth IRA for him. Assuming, he's 22 at the time, that would give him $1.3M tax-free when he's 60.

    4. Use it: You will need to pay taxes on the earnings and a 10% penalty if the funds are not being used for qualified educational expenses, but it's certainly not lost in the abyss!

Hopefully this helps clarify some of the noise in the 529 account space.


If you need help getting started with investing for college, please schedule a free introductory meeting! For less than $5/day, it’s the most affordable way to access professional help.

Disclaimer: The information in this post is provided for your convenience only and is not intended to be treated as financial, investment, tax, or other advice. The information is intended to be educational and is not tailored to the investment needs of any specific individual.  It is also not intended to be relied upon as a forecast and is not an offer or solicitation to buy or sell any securities or to adopt any investment strategy.  The opinions expressed are those of the author.  Reliance upon the guidance and information in this presentation is at the sole discretion of the individual.

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