Beginning in 2024-2025, 529 accounts will only be counted as a parental asset if the account is designated for the student. Previously, if a parent had education savings accounts for their other children, the value of those was also required to be counted.
Student Aid Index (SAI) will replace Expected Family Contribution (EFC) for 2024-25. It is an important factor in the needs-analysis calculation on the Free Application for Federal Student Aid (FAFSA), the form used by colleges, states, and other scholarship providers to determine financial aid packages.
Some schools require additional information to determine financial aid awards. Inclusion of accounts owned by someone other than the student or custodial parent depend on the school’s requirements. The best resource for detailed financial aid information is your school’s financial aid office or a college access or financial aid advisor in your area. For more information about federal student aid, visit studentaid.gov.
Like any non-retirement investment or savings, 529 accounts may affect eligibility for need-based financial aid – however, the impact is minimal. For accounts owned by parents and dependent students, the Free Application for Federal Student Aid (FAFSA) assesses 529 assets at about 5.64 percent of the value when calculating the Student Aid Index (SAI) for financial aid eligibility. Accounts owned by other parties will impact eligibility differently. For more information, consult studentaid.gov or an educational financial aid advisor.
Typically, having a 529 account doesn’t impact merit-based financial aid, like academic or athletic scholarships, and may be used to pay for qualified expenses not covered by a scholarship or retained for future years, for either undergraduate or graduate school.
If your student gets a scholarship, you have options. You can use the money in the 529 account to pay for qualified expenses not covered by a scholarship or retain the funds for future years. Some plans allow you to request a scholarship refund or transfer the account to another student.
Withdrawals from a 529 account that are used for non-qualified education expenses are taxable as ordinary income and, unless an exception applies, are subject to a federal penalty of 10 percent. Exceptions to the non-qualified withdrawal rules include the investment earnings of a withdrawal made due to the student’s death, disability or receipt of a scholarship.
Each state’s tax rules may differ in its treatment of income from a 529 plan, so it’s important to check with your state or consult a tax advisor regarding specific tax consequences taking withdrawals.
A 529 plan is meant to cover costs required for enrollment and attendance at a school. Things like college application or testing fees, transportation/travel costs, health insurance, extracurricular activity fees, and room & board (if enrolled on a half-time basis or off-campus) are considered non-qualified education expenses.
For K-12, home schooling expenses are not covered by 529 plans.
The Internal Revenue Code (Section 529), which governs college savings plans, outlines Qualified Higher Education Expenses. Generally, qualified higher education expenses include costs required for the enrollment or attendance at a school (tuition, fees, room and board, books, computers). If you are unsure about a particular expense, it’s best to contact a tax professional or contact your 529 plan administrator.
Here’s how you can determine whether your school or apprenticeship is covered by a 529 plan:
Higher Education: Most colleges, universities or vocational schools in the U.S. or abroad that participate in federal financial aid programs are considered eligible educational institutions. This includes schools offering undergraduate and graduate degrees, and other various certification or training. You can check the eligibility of a specific school online at Studentaid.gov/fafsa-app/FSCsearch or contact the school directly.
Apprenticeships: To be covered by a 529 plan, the trade or vocational school must have a federal school code or accept federal financial aid, while the program should be a Registered Apprenticeship Program through the Department of Labor and Industry. You should check with your program sponsor about the program eligibility.
K-12 Education: Most public, private or religious K-12 tuition expenses are covered by 529 plans. If you have questions about your school, check with your state’s Department of Education.
It’s not required to report withdrawals used for qualified higher education expenses on your federal tax return. Each year in which a withdrawal is made, an IRS Form 1099-Q (Qualified Tuition Program Payments) will be issued:
- For withdrawals made payable to the student or a school, the 1099-Q is sent to the student.
- For withdrawals made payable to the account owner, the 1099-Q is sent to the account owner.
As of 2024, gifts of up to $18,000 per year, or up to $36,000 if married, to any one person are gift tax free.
Yes, but the same qualified higher education expense may not qualify for more than one tax benefit (e.g., tax-free withdrawals AND a federal tax credit).
Generally, withdrawals from a 529 plan are exempt from state or federal income tax when used for qualified higher education expenses.
Non-qualified withdrawals are taxable as ordinary income and, unless an exception applies, are subject to a federal penalty of 10 percent. Exceptions to the non-qualified withdrawal rules include the investment earnings of a withdrawal made due to the
student’s death, disability or receipt of a scholarship.
Each state’s tax rules may differ in its treatment of income from a 529 plan, so it’s important to check with your state or consult a tax advisor regarding specific tax consequences taking withdrawals. Find information about tax benefits for education including examples, in IRS Publication 970, also available by calling the IRS toll-free at 1-800-829-1040.
Earnings on 529 plan grow federal and state tax–deferred and are excluded for income tax purposes when used for qualified higher education expenses. You pay no income tax as your contributions grow.
Typically, having a 529 plan doesn’t impact merit-based financial aid, like academic or athletic scholarships, and may be used to pay for qualified expenses not covered by a scholarship or retained for future years, for either undergraduate or graduate school. But, like any non-retirement investment or savings account may affect eligibility for need-based financial aid – however the impact is minimal. For accounts owned by parents and dependent students, the Free Application for Federal Student Aid (FAFSA) assesses 529 assets at a maximum of 5.64 percent of the value when calculating the Expected Family Contribution (EFC) for financial aid eligibility. Accounts owned by other parties will impact eligibility differently. For more information, consult Studentaid.gov or an educational financial aid advisor.
Yes. Some states allow a 529 plan to be used to cover tuition costs for private and religious K-12 education, up to $10,000 per child per calendar year.
It’s never too late to open a 529 account. Children or adults of any age can enroll in most 529 savings plans. Although, some restrictions may apply depending on the specific plan.
Yes. Many families choose to enroll in multiple accounts, however, there are maximum contribution limits. For example, the maximum contribution for Virginia529 is $550,000 across all accounts for a single student.
Most 529 plans do not have residency requirements. For example, you do not have to be a Virginia resident to open an Invest529 account (except the Tuition Track Portfolio). Most plans cover expenses for out-of-state schools, but rules may vary by plan.
Generally, anyone can open a 529 account as long as they are 18 years of age or older and a U.S. citizen or legal U.S. resident, while the student must be a U.S. citizen or legal U.S. resident to be named to an account. The account owner may also be a U.S. trust, corporation, partnership, nonprofit organization, custodian, guardian or other entity.
529 plans don’t need to be exclusively used for college! Because of the flexibility, a 529 plan can be used towards any eligible professional or vocational school and even for registered apprenticeship programs. If higher education isn’t in your student’s immediate plans, you can hold the funds in the account for their future use. Alternatively, you can change the student on the account to an eligible family member or even yourself for your own education. The money in the account is always yours. You can withdraw your original investment, although you may be subject to taxes or penalties on investment earnings or non-qualified expenses.