Five things you may not know about 529s (but should)

How are some families planning for future education expenses? According to Sallie Mae’s “How America Saves for College” 2024 report, 35% of families used a college savings account like a 529 to pay for college.¹ But did you know a 529 plan can be used for more than just paying for college? They’re tax-advantaged investment plans that can help families save for an array of educational costs and provide other significant benefits. For all their features, 529 plans are still often misunderstood and under-utilized. Here's what you may not know:

Named after section 529 of the Internal Revenue Code, 529 plans offer federal and state tax-free compounding for as long as funds are invested within the plan. A bonus: there's never a required minimum distribution (RMD). Withdrawals for qualified educational expenses are federally tax-free and free form most states' income taxes. Further, many states offer their residents various levels of income tax deductions or credits for contributions to the state’s 529 plans to further encourage saving and investing. Check with your tax advisor to see what your state may offer.

There are no income or age limitations, meaning any adult can open an account for any person's future educational expenses. Account owners may change the designated beneficiary for any reason, at any time. They can even name themself as a beneficiary.

Some states require a minimum initial investment, sometimes as low as $25, to start a 529 plan. Additionally, the maximum account contribution limits are generous, ranging from $235,000 up to more than $600,000 per beneficiary.² The plans are state-sponsored, but you can participate in mostly any state's plan. However, you should first consider your home state’s plan, as it may offer tax or other benefits exclusive to state residents, such as creditor protection, scholarships, and matching contributions.

You can use funds from a 529 plan, tax-free, for most expenses at traditional undergraduate and graduate schools. You can also use them for many kinds of post-secondary education, such as art or cooking institutes, community colleges, trade and vocational schools. You can even use them for qualified apprenticeship programs and eligible international school expenses. Additionally, you can use up to $10,000 to repay qualified student loans.

Under the recently-enacted One Big Beautiful Bill Act, starting in 2026, you may  be able to use 529 funds for up to $20,000 in elementary, middle, and high school tuition annually, up from a $10,000 limit previously.³ And new, effective immediately and retroactive for 2025, 529 plan uses cover a broader range of K–12 educational expenses, including:

• curriculum materials,
• books,
• online resources,
• tutoring,
• test preparation,
• standardized test fees,
• dual enrollment fees and,
• educational therapies for students with disabilities.

Career credentialing and job training programs are also now qualified expenses, with ongoing costs for maintaining professional credentials eligible. And on top of that, rollovers from 529 plans to Achieving a Better Life Experience (ABLE) accounts for individuals with disabilities and their families are now permanent, removing the previous expiration date of January 1, 2026.

Connect with your tax advisor to learn more about any state tax implications associated with paying these costs from a 529 account.

Further, effective January 1, 2024, 529 account owners may be able to transfer qualified leftover funds to a Roth IRA—for the 529 designated beneficiary, without any tax or penalty and no income limits—making 529 plans an even more robust solution for long-term financial planning.⁴

One of the great features of a 529 plan is that, as you fund these accounts for future education expenses, you also are reducing the size of your taxable estate. 529 accounts are generally excluded from your taxable estate and not subject to federal estate taxes. It’s important to note that you still control the assets and can access your money at any time.

This important benefit of 529 plans allows grandparents and other family members to pass on assets to subsequent generations while enjoying certain tax advantages. With no withdrawal requirement, as owner with full control, you can designate who the account should be transferred to upon your passing. Further, you may change such successor owner at any time, without any tax, cost, penalty, or fee, similar to the ability to change the account’s designated beneficiary.

In 2025, anyone, including grandparents, can contribute up to $19,000 per year ($38,000 for married couples) to any individual’s 529 account, utilizing the annual gift tax exclusion.⁵ Additionally, you can bundle five years of gifts in one year for a total of $95,000 contribution ($190,000 for married couples), provided you make the required election on a gift tax return for the year of the contribution.⁶

The 2025 Unified Lifetime Gift Credit, currently set at $13.99 million per person, is also available to fund your account up to each 529 plan’s maximum account limit set by the state sponsor, often in excess of $500,000. The credit will increase to $15 million per person starting in 2026, indexed annually for inflation. 

The impact of a 529 account on financial aid is typically minimal. The short explanation: If a parent is the account owner, the student’s needs-based financial aid award will decrease by no more than 5.64% of the account value.⁷

A 529 account opened by a grandparent has no impact on needs-based financial aid awards.

Most 529 plans have fairly flexible investment options, but there are differences between plans. Morgan Stanley offers a variety of 529 plans to help you save while taking advantage of all the benefits. The Morgan Stanley National Advisory 529 Plan offers fiduciary oversight of your account within the context of your broader assets, portfolio, and life goals.⁸ Additionally, other plans offered are backed by some of the nation’s leading investment management companies. 

When it comes to education costs, every dollar counts.

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CRC# 4844501  10/2025