529 Plans: A Smart Way to Save for Education
September 2, 2025
Investing in education can pay lifelong dividends. Earning a college degree—or pursuing advanced training—often leads to higher income potential and greater financial security. That’s why it’s wise to begin saving early in a child’s life, giving your money more time to grow.
One of the most popular tools for education savings is the 529 plan, which offers tax advantages and flexibility for covering a wide range of education-related costs. But since not all 529 plans are alike, it’s important to understand how they work and how to choose one that aligns with your goals.
What is a 529 plan?
A 529 plan is a tax-advantaged investment account sponsored by a state or state agency. Savings grow tax-deferred, and withdrawals are tax-free if used for qualified education expenses, which may include:
● College tuition and fees
● Room and board
● Textbooks and supplies
● Student loan repayment (lifetime cap of $10,000)
● K–12 tuition (up to $10,000 annually in 2025, rising to $20,000 in 2026)
● Certain vocational or technical training costs
● Future transfers to a Roth IRA (with restrictions)
3 Key Factors When Comparing 529 Plans
1. State tax benefits
While you can open a 529 plan in any state, some states reward residents with tax deductions or credits for contributions. These incentives vary widely:
● Massachusetts: up to $2,000 deduction for married couples filing jointly
● Georgia: up to $8,000 per beneficiary, per year, for joint filers
● Indiana: 20% state tax credit, up to $1,500 annually
● New Mexico and Colorado: unlimited deductions
● On the flip side, states like California, New Hampshire, and North Carolina don’t offer state-level tax breaks at all. In such cases, focusing on plan performance and costs may matter more than location.
2. Fees
Some plans charge annual maintenance fees ($10–$50) that can slowly erode returns. To help offset these costs, look for:
● Low-cost investment options
● Fee waivers for in-state residents or automatic contributions
● Strong historical performance to balance out expenses
3. Investment options and performance
529 plans typically offer a menu of portfolios, ranging from age-based (which gradually shift from aggressive to conservative as the beneficiary nears college age) to static portfolios that maintain a fixed allocation. Options often include:
● Mutual funds
● ETFs
● Risk-based portfolios (conservative, moderate, aggressive)
● Evaluating past performance, risk alignment, and flexibility is critical. Remember: being too aggressive near college years can expose you to losses, while being overly conservative too soon could mean falling short of rising education costs.
Balancing State Tax Breaks and Investment Growth
State tax deductions are a nice perk, but the real strength of a 529 plan lies in long-term compounding. Contributions have the potential to grow tax-deferred, and qualified withdrawals are tax-free. Over 10 to 20 years, those benefits can outweigh a modest state tax deduction.
Example:
Suppose a couple contributes $5,000 annually to a 529 plan for 18 years, earning a hypothetical 7% annual return. Their $90,000 in contributions could grow to nearly $182,000—even before factoring in any state tax perks. That growth potential often makes a bigger difference than a one-time tax deduction.
Choosing the Right Plan
When deciding between plans, weigh all the factors:
● If your state offers a generous tax break, staying local may make sense.
● If fees are high or investment options are weak, an out-of-state plan—especially in tax parity states—may provide more value.
The Bottom Line
A 529 plan can be a powerful way to fund education, but the best choice depends on balancing tax benefits, fees, and investment opportunities. Consistent saving, paired with the right plan, can make it easier to help your child—or yourself—pursue education without sacrificing long-term financial goals.
Sources:
https://www.fidelity.com/learning-center/personal-finance/comparing-529-plans
Disclosure:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.