The Money Fit Show · Season 1, Episode 27
The Benefits of 529 College Savings Plans
A 529 plan can give families a tax-advantaged way to save for education while keeping flexibility if a child attends school in another state, chooses a different education path, or changes plans entirely. David Bell returns to The Money Fit Show to explain how these accounts work and what families should understand before choosing a plan.
Understanding 529 education savings plans
Play Season 1, Episode 27 directly through Spotify without leaving Money Fit.
A 529 plan can be more flexible than its name suggests
David Bell and Todd Christensen discuss 529 plans, formally known as qualified tuition programs. These state-sponsored accounts allow money to grow with federal tax advantages when distributions are used for qualified education expenses.
Families are generally not required to use the 529 plan offered by their own state, and the beneficiary is generally not required to attend school in the state sponsoring the account. State tax benefits and plan features can vary, so comparing the home-state plan with other available plans may still matter.
The episode also looks at what happens when plans change. Funds may be usable for a range of qualified education and training expenses, the beneficiary can often be changed to another qualifying family member, and current law provides additional options that did not exist when this episode was recorded.
Topics covered in this episode
- The basic structure of a 529 education savings plan and how families can contribute for a designated beneficiary.
- Federal tax treatment and possible state-level tax benefits or incentives for 529 contributions.
- Why May 29 is recognized by many programs as 529 College Savings Day.
- Why families are generally free to consider a 529 plan offered by a state other than the one where they live.
- Using a state-sponsored 529 account for an eligible school located in another state.
- Qualified uses that can include eligible colleges, universities, vocational education, and registered apprenticeship expenses.
- The episode's discussion of using limited 529 funds for eligible K-12 education expenses.
- Options when the original beneficiary does not pursue the education path the family expected, including eligible beneficiary changes and other current alternatives.
- Why nonqualified withdrawals should be considered carefully because earnings can become taxable and may be subject to an additional federal tax unless an exception applies.
- The motivational value some families see in letting a child know that money is being set aside for future education or training.
- Why David recommends beginning with research into your own state's 529 plan and comparing its costs, investment options, tax incentives, and rules.
Compare the plan before choosing the account
The tax label alone does not make every 529 plan identical. Compare fees, investment choices, state tax incentives, contribution rules, and other plan features. Your home-state plan may provide advantages that another state's plan does not, but families generally have choices.
529 plans have become more flexible since this episode aired
Federal 529 rules have expanded since this December 2021 conversation. Qualified uses now include certain registered apprenticeship costs, limited qualified student loan repayments, and certain postsecondary credentialing expenses.
Beginning with distributions after 2023, some unused 529 funds may also be transferred directly to the beneficiary's Roth IRA. The rollover is subject to requirements that include a $35,000 lifetime limit, annual Roth IRA contribution limits, a 15-year account-age requirement, and restrictions involving more recent contributions and earnings.
Federal rules for K-12 expenses have also changed. Current IRS guidance allows up to $20,000 per beneficiary per year across the beneficiary's 529 accounts for qualifying elementary and secondary education expenses. Families should verify current federal and state rules before taking a distribution.
Oregon's program has changed names as well. The former Oregon College Savings Plan is now called Embark and remains part of the Oregon State Treasury's public savings programs.
Official education savings information
The original Oregon College Savings Plan has been renamed Embark. The IRS resources below reflect current federal rules rather than the outdated Publication 529 link in the original show notes.
David Bell
David Bell returned to The Money Fit Show after his earlier discussion of Oregon's workplace retirement savings program. At the time of this episode, he served as Deputy Director with the Oregon State Treasurer's Office.
In this conversation, David and Todd focus on education savings, including how 529 plans are structured, where the money can be used, state and federal tax considerations, and the choices families may have when a student's education plans change.
