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Summary: What Every Advisor Should Know About Evaluating 529 Plans

Featured Experts:

• Mary Morris, CEO of Virginia’s Commonwealth Savers and Chair of the College Savings Plans Network (CSPN)
• Chris Hunter, Deputy Director, National Association of State Treasurers
• Beth Walker, College Planning Specialist and CFP®
• Host: Tom Dickson, Founder, Financial Experts Network

1. Evolution and Structure of 529 Plans

Mary Morris provided historical context: 529 plans originated from state-run prepaid tuition programs that predated the federal Internal Revenue Code §529 (passed in 1996). These plans allow tax-advantaged education savings through either:

• Prepaid tuition programs (defined benefit)
• Savings plans (defined contribution)

All 529 plans must be state-sponsored except for one—the Private College 529 Plan, run by a consortium of private colleges under a special federal exemption.

📖 Fact check: IRS overview of 529 plans:
https://www.irs.gov/newsroom/529-plans-questions-and-answers

2. Direct vs. Advisor-Sold Plans

529 plans fall into two primary categories:

Most states offer both types. For instance, Virginia offers:

• Invest529 (direct) and
• CollegeAmerica (advisor-sold, managed by American Funds) — the nation’s largest 529 plan.

📖 Fact check: College Savings Plans Network: https://www.collegesavings.org

3. Federal and State Tax Advantages

• Earnings grow tax-deferred, and qualified withdrawals are tax-free for education expenses.
• Most states (34) offer a state income tax deduction or credit for contributions.
• A few (like Colorado, Kansas, Pennsylvania) allow deductions for any state’s plan (“parity states”).
• Nine states offer no state income tax, and thus no deduction applies.

Key Tip for Advisors: Always confirm a client’s state conformity rules—some states don’t align with recent federal expansions (e.g., K–12 or student loans).

📖 Fact check: Saving for College — State Tax Benefits:
https://www.savingforcollege.com/article/which-states-offer-a-529-plan-tax-deduction-or-credit

4. Qualified Expenses (Post–Tax Reconciliation Act Updates, 2025)

Qualified expenses now include:

• Tuition and fees (2-year, 4-year, vocational, and graduate programs)
• Books, computers, and supplies
• Room and board (if enrolled at least half-time)
• K–12 education — Up to $20,000 per year (starting 2026) for tuition, tutoring, or test fees
• Student loan repayment — Up to $10,000 per borrower, plus $10,000 for each sibling
• Continuing education and professional certifications (new under 2025 law)
• Workforce training programs under the Workforce Innovation and Opportunity Act (WIOA)

📖 Fact check: U.S. Department of Education – WIOA Programs:
https://www.dol.gov/agencies/eta/wioa

📖 Fact check: IRS Publication 970 (Tax Benefits for Education):
https://www.irs.gov/publications/p970

5. Estate Planning and Gifting Opportunities

529 plans are powerful estate-planning tools:

• Contributions are considered completed gifts, yet the owner retains control.
• Individuals can “front-load” up to five years of gifts at once (2025 limits: $95,000 individual / $190,000 couple per beneficiary) without triggering gift tax.
• Assets are removed from the taxable estate but remain under the donor’s control.

📖 Fact check: IRS Form 709 instructions (Gift Tax Rules):
https://www.irs.gov/instructions/i709

6. Ownership and Financial Aid Considerations

Tip: FAFSA now excludes grandparent-owned 529 withdrawals from the “student income” test, a major planning benefit for multigenerational families.

📖 Fact check: Federal Student Aid – FAFSA & 529 treatment:
https://studentaid.gov/help-center/answers/article/fafsa-529-account

7. Investment Options and Risk Management

529 plans typically offer limited, pre-set portfolios:

• Age-based / Target-enrollment portfolios: Automatically shift from equity to fixed income as college approaches.
• Static (target risk) portfolios: Conservative, moderate, or aggressive mixes.
• Principal-protected portfolios: FDIC-insured or stable-value options, increasingly popular as interest rates rise.

Average account balances nationwide are about $25,000–$35,000, with monthly contributions around $150–$200.

📖 Fact check: College Savings Plans Network Data Reports:
https://www.collegesavings.org/research-reports/

8. New Flexibility for Unused Funds

Advisors can now recommend several tax-efficient strategies for leftover funds:

• Rollover to Roth IRA: Up to $35,000 lifetime, if the account is at least 15 years old.
• Transfer to ABLE accounts for beneficiaries with disabilities (made permanent in 2025).
• Change beneficiary within the family (siblings, cousins, grandchildren).
• Future proposal: Allow unused funds to be donated to charity—under discussion for 2026.

📖 Fact check: SECURE 2.0 Act Section 126 (Roth Rollover Provision):
https://www.congress.gov/bill/117th-congress/house-bill/2954/text

📖 Fact check: ABLE National Resource Center:
https://www.ablenrc.org

9. Evaluating Plans with the CSPN Comparison Tool

Chris Hunter demonstrated the College Savings Plans Network’s “Find My State’s Plan” and “Search and Compare” tools, which:

• Aggregate verified data from all 529 plans nationwide.
• Compare fees, investment options, and tax benefits across up to three states.
• Are free and noncommercial for both advisors and consumers.

📖 Fact check: College Savings Plans Network comparison tool:
https://www.collegesavings.org

10. Key Takeaways for Financial Advisors

✅ Review State-Specific Rules: Always check client residency benefits before recommending out-of-state plans.
✅ Integrate with Estate and Tax Planning: Use 5-year gifting and Roth rollovers strategically.
✅ Account for FAFSA & CSS Profile Differences: CSS may still require disclosure of non-parental 529s.
✅ Encourage Family Conversations: Educate parents and grandparents on coordination and ownership impact.
✅ Highlight Accessibility: With new K–12, vocational, and adult education coverage, 529s are now a lifelong education savings vehicle, not just for college.

Recommended Fact-Check & Reference URLs:

• IRS 529 Q&A: https://www.irs.gov/newsroom/529-plans-questions-and-answers
• Saving for College – State Tax Deductions: https://www.savingforcollege.com/article/which-states-offer-a-529-plan-tax-deduction-or-credit
• College Savings Plans Network: https://www.collegesavings.org
• U.S. Department of Labor – WIOA Overview: https://www.dol.gov/agencies/eta/wioa
• IRS Publication 970: https://www.irs.gov/publications/p970
• SECURE 2.0 Act (Roth Rollovers): https://www.congress.gov/bill/117th-congress/house-bill/2954/text
• ABLE National Resource Center: https://www.ablenrc.org