Making the Most of Your 529 College Savings Plan

October 29, 2025

For years, you’ve diligently added money to your child’s 529 college savings plan—birthday checks, annual contributions, and maybe even gifts from grandparents. Now, college is right around the corner, and it’s time to start using those savings wisely.

The good news: you’re in control of how much to withdraw and when. The challenge: making sure those withdrawals are used strategically so you don’t face taxes, penalties, or financial aid surprises. Here’s how to put your hard-earned 529 savings to work efficiently and confidently.

1. Know the 2025 Contribution Limits

For 2025, each parent can contribute up to $19,000 to a 529 plan ($38,000 per couple) without triggering federal gift tax reporting. Grandparents can do the same—up to $38,000 per couple per beneficiary each year.

If you’d like to contribute more, the IRS allows for “accelerated gifting”—front-loading up to $95,000 per person ($190,000 per couple) into one year’s contribution. This strategy uses up five years’ worth of gift-tax exclusions but allows your investment to start compounding right away.

2. Understand What Counts as a Qualified Expense

Withdrawals from your 529 plan are federal income tax-free as long as they’re used for qualified education expenses. These include:

●     Tuition and required fees

●     Room and board (if the student is enrolled at least half-time)

●     Books, supplies, and required course materials

●     Computers and related technology used for school

●     Up to $10,000 per year for K–12 tuition

However, not all college-related costs qualify. You can’t use 529 funds for travel, insurance, sports or health club fees, smartphones, or entertainment equipment. If your child lives off-campus, make sure your room and board withdrawals don’t exceed the school’s published “cost of attendance.” When in doubt, ask the financial aid office to confirm what qualifies.

Tip: Keep receipts and records for every expense. If the IRS ever asks, you’ll be ready to prove your withdrawals matched your qualified costs.

3. Time Withdrawals Carefully

Your withdrawals must match your qualified expenses within the same calendar year, not the academic year. If your child’s tuition bill is paid in December, make sure you take that 529 withdrawal before December 31. Waiting until January could turn a qualified expense into a taxable one.

You can pay schools directly from the 529 plan, or transfer money to your bank account first and then reimburse yourself. Either way, track dates and amounts carefully.

4. Don’t Double Dip on Tax Breaks

Some parents qualify for additional education tax credits—like the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC). But you can’t claim those credits and also use 529 funds for the same expenses.

●     AOTC: Up to $2,500 per student each year (income limits: $90,000 single / $180,000 joint).

●     LLC: Up to $2,000 per return (same income limits).

If you plan to use one of these credits, coordinate your 529 withdrawals accordingly so you don’t lose out on valuable tax savings.

5. Coordinate Multiple 529 Accounts

It’s common for grandparents or other relatives to open separate 529 accounts for the same student. That’s great—but it can get tricky. Withdrawals from a grandparent-owned 529 may count as student income on a future FAFSA form, potentially reducing financial aid eligibility.

A smart workaround: have grandparents wait to take distributions until after your child’s sophomore year, once the final FAFSA affecting aid has already been filed.

6. What If There’s Money Left Over?

If your child graduates and there’s still money in the 529 plan, you have several good options:

●     Change the beneficiary to another family member (including siblings, nieces, or nephews).

●     Roll over the funds into another child’s 529 account.

●     Save it for graduate school.

Thanks to the SECURE 2.0 Act, you may also be able to roll unused funds into a Roth IRA for your child—subject to specific limits and rules. This can turn leftover college savings into a head start on retirement.

And if your child earns a scholarship, you can withdraw up to that amount penalty-free (though earnings will still be taxed as income).

7. Keep Financial Aid and Loans in Mind

529 assets are considered parent-owned accounts for FAFSA purposes, which means they typically have a smaller impact on aid eligibility than student-owned accounts. If you anticipate taking out loans, it often makes sense to spend 529 funds first before borrowing.

8. Protect What You’ve Built

As you start spending from your 529, make sure the investments align with your time horizon. If your plan uses an age-based investment strategy, it likely shifts toward more conservative holdings—like short-term bonds or cash equivalents—as college approaches.

Now’s a good time to review your investment mix and withdrawal schedule with your financial professional to preserve what you’ve earned.

Final Thoughts

A 529 plan is one of the most powerful tools for college savings—but the real value comes when you know how to use it effectively. By planning your withdrawals carefully, keeping good records, and coordinating with other family members, you can stretch those dollars further and keep taxes and penalties at bay.

Your years of disciplined saving are about to pay off—literally. Now it’s time to put that planning to work and give your student the financial foundation they need to start this next chapter with confidence.

Sources:

https://www.fidelity.com/learning-center/personal-finance/college-planning/college-529-spending

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.