What Is a 529 Plan?
A 529 plan is a tax-advantaged savings account designed specifically for education expenses. Named after Section 529 of the Internal Revenue Code, these plans allow your investments to grow tax-free, and withdrawals are also tax-free when used for qualified education expenses including tuition, room and board, books, and even K-12 education up to $10,000 per year.
State Tax Benefits
One of the biggest advantages of 529 plans is the state tax benefit. More than 30 states offer income tax deductions or credits for contributions. Some states like Arizona, Kansas, and Pennsylvania even allow deductions for contributions to any state's plan, not just their own. In 2026, several states have increased their deduction limits, making now an excellent time to start or increase contributions.
Best 529 Plans for 2026
The best 529 plans combine low fees with strong investment options. Utah's my529, Nevada's Vanguard 529, and New York's 529 Direct Plan consistently rank among the top choices due to their rock-bottom expense ratios and diverse age-based investment portfolios. When choosing a plan, consider your state's tax benefits first, then compare expense ratios and investment quality.
New Rules for 2026
The SECURE 2.0 Act introduced a game-changing provision: starting in 2024, unused 529 funds can be rolled over into a Roth IRA for the beneficiary, up to $35,000 lifetime. This eliminates the biggest concern parents had about overfunding. The account must have been open for at least 15 years, and rollovers are subject to annual Roth IRA contribution limits.