6 Surprising Facts You May Not Know About 529 Plans—and Why They Matter for Your Family’s Future

When it comes to saving for education, few tools are as powerful and misunderstood as the 529 plan. Widely regarded as the go-to tax-advantaged account for college savings, 529 plans offer more flexibility and benefits than many families realize. If you’re a parent, grandparent, or simply someone interested in supporting a loved one’s education, understanding the lesser-known features of 529 plans can help you make smarter financial choices.

Here are six things you may not know about 529 plans—and how they could help you maximize your savings, protect your investments, and enhance your child’s educational opportunities.

1. 529 Plans Have Minimal Impact on Financial Aid Calculations

• MYTH: A 529 plan will ruin your child’s chances of receiving financial aid.
• FACT: A parent-owned 529 account has a very limited impact on federal financial aid eligibility.

Assets in a parent-owned 529 plan are assessed at a maximum rate of just 5.6% in the federal financial aid formula known as the Student Aid Index (SAI). By contrast, assets owned by the student—like those in a custodial UGMA/UTMA account—can be assessed at rates as high as 20%, which can significantly reduce aid eligibility.

What this means: if you’re worried that saving for college could disqualify your child from financial aid, rest easy. The 529 plan is one of the most financial-aid-friendly investment vehicles available for education planning.

2. You Don’t Lose the Money If Your Child Doesn’t Go to College

One of the most common concerns parents express is: What happens if my child doesn’t use all the money in the 529? Fortunately, 529 plans are far more flexible than many people think.

Here’s what you can do:

• Change the beneficiary to another qualifying family member—such as a sibling, niece, nephew, grandchild, or even yourself.
• Withdraw an amount equal to a scholarship your child receives—without the 10% federal penalty. You’ll only pay income tax on the earnings.
• Use the money for other post-secondary education such as trade schools or graduate programs.

And here’s a powerful new option:

As of January 1, 2024, unused 529 funds can now be rolled into a Roth IRA for the beneficiary—under specific conditions—offering a retirement planning boost if college isn’t the end goal.

Bottom line: your money isn’t locked up or lost. The 529 plan gives you options.

3. You Can Choose Any State’s 529 Plan—Not Just Your Own

Most people assume they must use their home state’s 529 plan. The truth is, you can invest in any state’s plan, regardless of where you live or where your child eventually goes to school.

So why consider other states’ plans?

• Some states offer lower fees, better investment options, or superior fund managers.
• Your own state may or may not offer state income tax deductions or credits on contributions.
• For example, residents of New York may enjoy a state income tax deduction by contributing to New York’s 529 plan, while residents of states like
• California (which doesn’t offer any deduction) may benefit more from a top-rated plan in another state like Utah or Ohio.

Do your research and compare fees, performance, and benefits. The right plan could save you thousands over time.

4. 529 Funds Aren’t Just for College—They Can Be Used for K–12 Tuition

A little-known feature of the 529 plan is that it’s not limited to college expenses. Under current federal law, you can use up to $10,000 per year per child to pay for elementary, middle, or high school tuition at private, public, or religious schools.

In addition, at the post-secondary level, 529 funds can be used for:

• Tuition and fees
• Room and board (if enrolled at least half-time)
• Books and required supplies
• Computers, internet access, and software

That makes the 529 plan more versatile than many parents realize, especially for families considering private schooling earlier in their child’s education.

5. Anyone Can Open or Contribute to a 529 Account

529 plans are not just for parents.

Anyone—a grandparent, aunt, uncle, family friend, or even a neighbor—can open or contribute to a 529 plan. In fact, you can even open a plan for yourself if you plan to pursue further education or career training.

This means you can invite extended family to contribute as a gift in lieu of toys or cash. Some plans even offer gifting platforms and registry links to make it easy.

A note of caution: if someone other than a parent (like a grandparent) owns the account, and the funds are later used for the student’s education, those distributions may count as income for financial aid purposes—depending on when the withdrawal occurs. Strategic timing of withdrawals can help minimize this impact.

6. Small Contributions Can Grow Significantly Over Time

You might assume that if you can’t save large amounts, it’s not worth opening a 529. This is a costly misconception.

Thanks to the power of compounding, even modest monthly contributions—say, $25 or $50—can grow into a meaningful sum over time. Many plans offer automatic monthly investment options, making it easy to stay consistent.

Consider this example:

If you invest $100/month from birth until age 18, assuming a 6% average annual return, you could have over $38,000 saved for college. That’s a huge head start—and potentially thousands less in student loans.

Also, contributions from birthdays and holidays can supercharge savings. Ask friends and family to pitch in instead of giving more toys—every dollar makes a difference.

Final Thoughts: A Tool Too Powerful to Ignore

529 plans remain one of the most effective, tax-efficient ways to prepare for education costs in America today. While most people know the basics—tax-deferred growth and tax-free qualified withdrawals—there’s a surprising depth of flexibility and utility under the surface.

Here’s a quick recap of what you now know:

• Parent-owned 529s have minimal financial aid impact.
• You won’t lose your money if your child doesn’t use it.
• You can pick any state’s plan.
• You can use funds for K–12 tuition and more.
• Anyone can open or contribute to an account.
• Even small contributions grow significantly over time.

If you haven’t started yet, it’s never too late—and the sooner you begin, the more your money can work for you. Speak with a financial advisor to assess your options, or explore 529 plans online to find one that aligns with your goals.

Smart planning today can mean less debt, more opportunity, and greater peace of mind tomorrow.