Why a 529 College Savings Plan?

College is getting more expensive every year. A 529 college savings plan is a tax-advantaged way to help families reach their savings goals. Whether college is fast-approaching or years down the road, saving today can put the power of time and earnings potential on your side.

What Is a 529 Plan?

A 529 plan is a tax-advantaged way for families to save money for college tuition and education-related expenses.

It lets you set aside money (typically $350,000 or more) in a professionally managed account that you can use at nearly every U.S. college and university. You make contributions to your plan using after-tax dollars, but earnings are tax-deferred while invested and tax-free when used for qualified educational expenses. The “529" refers to the section of the Internal Revenue Code that created these college savings plans.

Saving Actually Saves You Money

Key Benefits of a 529 Plan Managed by T. Rowe Price

A 529 plan can help you reach your college savings goals while offering tax savings options.

Your investment can be used tax-free to cover tuition, room and board, books, supplies, computer technology, and equipment related to attending a qualified education institution.

  • Tax-deferred growth
  • Any withdrawals used to pay qualified higher education expenses are free of federal income tax and may be state tax-free as well.
  • Some states offer additional tax benefits including a state income tax deduction for your contribution.

College savings plans have a low impact on financial aid.

When it comes time to apply for financial aid, only a small percentage of the account's value (currently 5.64% or less) is factored in when determining your expected family contribution. Typically, 529 plans can be used in conjunction with other federal education incentives, such as Education Savings Accounts (ESAs), the Hope Scholarship, and Lifetime Learning Credits.

Every family has unique college savings goals.

That’s why T. Rowe Price offers different investment approaches within each one of our college savings plans. Click on a plan below to review each individual plan's investment options, so you can choose what’s best for your college savings goals.

The account holder (usually a parent or legal guardian) retains control of the assets.

As the account holder, you have the ability to make several key decisions with your 529 account:

  • You can select and change investment portfolios based on your college savings goals.
  • You can transfer beneficiaries without penalty if your child decides not to attend college or receives a scholarship.

Anyone can enroll or contribute to a 529 college savings plan.

Contributing to a 529 college savings plan can be one of the most valuable gifts a child can receive. Anyone can do it. Whether you’re a family member or a friend, you can help with some, most, or all of a child’s higher education costs.

  • You can open an account of your own or make a gift contribution to an existing college savings plan.
  • There are no limits on age, income, or relationship with the beneficiary.
  • You can invest any amount up to the account balance maximum (typically $350,000 or more).

The gift of education is a head start in the right direction.

Alternative Investment Options

In addition to a 529 college savings plan, you can consider a few other college funding strategies to help pay for qualified higher education costs.

529 plans vary from state to state, and each has somewhat different costs, investment options, and tax incentives. In addition, an account holder may have limited investment options, depending on the particulars of the plan you select. When choosing the plan that works for your goal, compare the features of your state’s 529 plan with others to weigh the plan benefits.

1Assumes a 6% annualized return for the investment and a loan interest rate of 8% annualized. Total loan period is 14 years: 4 years in college plus 10-year repayment period. This depiction is for illustrative purposes only and is not representative of any particular investment or loan, and does not consider any investment or loan origination fees. Amounts reflected are adjusted to today's dollars and assume an inflation/discount rate of 3% annualized.