Decision made: Why 529 plans are a popular choice for college
A 529 savings plan has continued to be popular among families with college-bound children. In fact, the number of accounts has continued to grow steadily over time, reaching 16 million at the end of last year.
As of December 2022, assets in 529 plans rose to $411 billion, according to the College Savings Plan Network. The average account size climbed to $25,630 in 2022 from $13,188 in 2009.
Here are some key facts for families to consider about 529 plans.
5: Top five benefits
Tax advantages
You pay no federal income taxes on account earnings while the account is invested. And you will pay no federal income taxes when the money is withdrawn to pay for qualified education expenses.
Control of account
You control the account, even when the child reaches legal age. As account owner, you retain control over withdrawals for the life of the account. In most cases, contributions to the account can be removed from your estate for tax purposes, yet you can retain control over the assets.
No income or time limits on contributions
Unlike certain accounts, such as Roth IRAs, anyone can contribute to a 529 regardless of their income. There is no age or time limit on contributions, unlike some custodial accounts.
High account limits
529 plans offer high maximum account limits to match the rising costs of education. For some, education savings is needed to help fund private tuition at the K–12 level, plus four years at a college or university. Though the limits differ by plan, Putnam 529 for America?, for example, offers a maximum contribution limit of $500,000 per beneficiary.
Age or enrollment-date investment options
Savers have investment options such as age-based strategies that are actively managed and become more conservative as a child approaches college enrollment age.
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2: Two biggest myths
I won’t be eligible for financial aid if I own a 529 plan.
Actually 529 plans are treated quite favorably when a student is applying for financial aid and the student aid index is being calculated. See our article on FAFSA changes .
As an asset, 529 plan funds count as a small percentage of parent assets versus other types of savings accounts, such as a custodial account for a minor.
When paying for college, 529 plan distributions from a parent-owned account are not factored as part of the income calculation for the FAFSA.
I may have to pay a penalty and taxes if there are funds leftover not needed for qualified education expenses.
Some families find they have saved more than their children need for college. Students may graduate early or attend a less expensive program. 529 plans offer several options if you don’t use all the money in the account.
9: Funds can be used for at least 9 qualified expenses
Learn more about?529 plans .
The opinions expressed here are my own and not those of Putnam Investments and are not intended as tax, legal, or investment advice.?Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, visit the?prospectus section , call your financial representative, or call Putnam at 1-800-225-1581. Please read the prospectus carefully before investing. Putnam Retail Management
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