529 plan questions to settle before you open, use or change one

A 529 plan is a way to save or prepay for a student's education costs. The rules that matter most come later: which expenses count, what happens to a withdrawal that does not match an expense, and what you can change after the account is open. This guide lists those questions and shows where the rules are written down.

Key takeaways

• A 529 withdrawal is tied to the beneficiary's qualified education expenses in the same year. Compare the two before you withdraw.
• Different expense types have different conditions. Room and board, computers, student loan payments and K-12 tuition each come with their own limits.
• A withdrawal that is more than the beneficiary's adjusted qualified education expenses can be partly taxable and can carry an additional 10% tax, with listed exceptions.
• States set their own plans and tax treatment. Read your plan's own documents.

This guide is for US readers. It covers federal rules for 529 plans, which the IRS also calls qualified tuition programs. It is educational, not individual investment, tax or legal advice. Valora is not a registered investment adviser and is not arranging advisor matches or introductions at this time. It does not recommend a plan, a contribution amount or an investment option, and it does not cover financial aid, student loans or other education accounts.

What is a 529 plan?

IRS Publication 970 describes a 529 plan, formally a qualified tuition program, as a program that lets you prepay or contribute to an account for paying a student's qualified education expenses at an eligible educational institution. States, state agencies and eligible educational institutions can set one up. You cannot deduct contributions on your federal return.

The IRS says anyone can open a 529 plan and name anyone as beneficiary, including a relative, a friend or yourself, with no income restrictions on the contributor or the beneficiary. The person who opens the account controls the funds until they are withdrawn. The designated beneficiary is generally the student or future student the plan is meant to benefit.

There are two basic types, according to the IRS and the SEC:

• Savings plans let you invest money for the beneficiary's future expenses. The SEC says most are open to everyone, though a few have residency requirements for the saver or the beneficiary.
• Prepaid tuition plans let you buy units or credits for future tuition. The SEC says these typically have residency requirements.

Each state has its own plan or plans. The IRS says you are not limited to your own state's plan, and that a state's plan may offer incentives to win your business.

What counts as a qualified expense?

Expenses count if they are required for the beneficiary's enrollment or attendance at an eligible educational institution, and the type of expense matters. The table below is drawn from IRS Publication 970 (2025 edition) and IRS Topic 313, which was reviewed on September 24, 2026. Read the current publication before you withdraw.

Expense	Condition the IRS states
Tuition, fees, books, supplies and equipment at a college, university, vocational school or similar school	Required for enrollment or attendance. The school must be eligible to take part in a student aid program run by the U.S. Department of Education.
Room and board	The student must be enrolled at least half-time. The expense qualifies only up to the greater of two amounts: the school's room and board allowance in its cost of attendance for the period and living arrangement, or the actual amount charged if the student lives in housing the school owns or operates. The IRS suggests contacting the school for the qualified amount.
Computers, related equipment, software and internet access	Must be used primarily by the beneficiary while enrolled at an eligible postsecondary school. Software for sports, games or hobbies is excluded unless it is mainly educational.
Apprenticeship fees, books, supplies and equipment	The program must be registered and certified with the Secretary of Labor.
Student loan payments	Up to $10,000 of principal or interest on qualified loans, counted separately for each individual. Loans of the beneficiary or of the beneficiary's sibling can qualify, and a sibling's payments count toward the sibling's own $10,000 limit, not a shared amount. Topic 313 calls it a lifetime limit.
Tuition at an elementary or secondary school	For 2025, Publication 970 (2025 edition) lists up to $10,000 of tuition per beneficiary. For 2026, IRS Topic 313 (reviewed September 24, 2026) gives $20,000 per year from all of the beneficiary's plans. Both list other kindergarten through grade 12 expenses, such as curriculum and certain test fees.
Postsecondary credentialing expenses	The expense must relate to a recognized postsecondary credential program as the IRS defines it.

These are the IRS's descriptions in summary. If an expense is not on this table or you are unsure, ask the plan and check the IRS source before you withdraw.

When can a withdrawal be taxable?

IRS Publication 970 says no tax is due on a withdrawal from a 529 plan unless the amount is more than the beneficiary's adjusted qualified education expenses. Adjusted qualified education expenses are the qualified expenses reduced by tax-free educational assistance, such as the tax-free part of scholarships and fellowship grants, veterans' educational assistance, the tax-free part of Pell grants and employer-provided educational assistance.

If you take a withdrawal, the IRS says you should receive Form 1099-Q from the plan. It splits the total amount withdrawn into earnings and the amount you put in. The publication explains that you compare the total withdrawn in the tax year with the adjusted qualified expenses, and that only the earnings portion can become taxable.

If a taxable amount results, the IRS says you must generally also pay an additional 10% tax on the amount included in income. The additional 10% tax does not apply to the following, according to Publication 970:

• A payment made on or after the death of the beneficiary, to the beneficiary or the beneficiary's estate.
• A payment made because the beneficiary is disabled, as the IRS defines disability.
• An amount included in income because the beneficiary received a tax-free scholarship or fellowship grant, veterans' educational assistance, or employer-provided educational assistance, or another nontaxable payment, other than gifts or inheritances, received as educational assistance, but only up to the amount of that assistance.
• A payment made because the beneficiary attended a U.S. military academy, up to the costs of advanced education attributable to that attendance.
• An amount included in income only because the same expenses were used to claim the American opportunity credit or the lifetime learning credit.

Form 5329 is used to figure the additional tax. The IRS's own pages carry the full rules and the worked examples.

Can the same expenses be used twice?

No. Publication 970 says you can claim an American opportunity credit or a lifetime learning credit in the same year the beneficiary takes a distribution from a 529 plan, as long as the same expenses are not used for both. The beneficiary reduces qualified expenses by tax-free educational assistance and then by the expenses used to figure the credit. A tax professional can sort the order for your return.

What can you change after the account is open?

• The beneficiary. Publication 970 says there are no income tax consequences if the designated beneficiary is changed to a member of the original beneficiary's family. A change to someone outside that family can have tax consequences, so check the family list below and the publication before you change it.
• The plan. Publication 970 says a distribution is not taxable if it is rolled over to another 529 plan for the same beneficiary or for a member of the beneficiary's family, including the beneficiary's spouse. An amount counts as rolled over if it is paid to the other plan within 60 days after the distribution. For a rollover to another plan for the same beneficiary, the publication says generally only one is allowed within 12 months of a previous transfer. The publication notes an exception to the 12-month limit for certain Maryland Prepaid College Trust rollovers under IRS Notice 2024-23. Read the publication and ask both plans before you move money.
• A Roth IRA. The IRS also describes a limited rollover from a 529 account to the beneficiary's Roth IRA. The SEC lists conditions, including a $35,000 lifetime limit, annual Roth IRA contribution limits, an account open at least 15 years, and funds held in the account at least five years. Read Publication 970 and ask your plan before moving money.
• Who counts as family. Publication 970 lists the beneficiary's spouse, children and descendants, brothers, sisters and step or half siblings, parents and ancestors, stepparents, nieces and nephews, aunts and uncles, certain in-laws, the spouses of those people and first cousins.

Federal and state rules are different

The IRS says contributions to a 529 plan are not deductible on a federal return. The SEC says many states offer tax benefits for contributions, such as a deduction or matching grant, and that these benefits vary by state and plan and may depend on using the plan your state sponsors. The IRS says earnings are generally not subject to state tax when used for the beneficiary's qualified expenses, and the SEC says earnings are not subject to federal income tax and "in many cases" state income tax when used for qualified expenses. Whether your state follows the federal treatment is a question for the plan and for your state's tax rules.

The SEC adds that state and federal laws that affect 529 plans can change.

Bottom line

Before you withdraw, compare the amount with the beneficiary's qualified expenses for the same year, and check the condition for each expense type. Before you change a beneficiary or move money, check the family list and the rollover conditions. Your plan's own documents and your state's rules come next.

Questions to ask a plan before you commit

• Is the plan a savings plan or a prepaid tuition plan?
• Does the plan have residency rules for the saver or the beneficiary?
• What fees apply, and who charges them?
• What investment options does the plan offer, and how often can you change them?
• What does the plan require to withdraw money for each expense type?
• What does the plan require to change the beneficiary or to roll over to another plan?
• How does your state treat contributions and withdrawals for state income tax?

The SEC's bulletin recommends reading the plan's offering circular and says an out-of-state plan with lower costs may outweigh in-state tax benefits for some savers. That comparison is yours to make.

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Common questions

Who can open a 529 plan?

The IRS says anyone can open one and name anyone as beneficiary, with no income limits on either person.

Are 529 contributions deductible on my federal return?

No, the IRS says contributions are not deductible. Some states offer tax benefits for contributions. Check your state.

Is every 529 withdrawal tax-free?

No. The IRS says no tax is due unless the amount withdrawn is more than the beneficiary's adjusted qualified education expenses. The earnings portion of an excess withdrawal can be taxable and can carry an additional 10% tax, with listed exceptions.

Can I use a 529 for private school before college?

Qualified expenses can include elementary and secondary school tuition, within a limit. For 2025, Publication 970 (2025 edition) says no more than $10,000 of tuition. For 2026, IRS Topic 313 says $20,000 per year from all of the beneficiary's plans. Check the figure for the year you withdraw.

What happens if the student does not use the money?

The IRS says there are no income tax consequences if the designated beneficiary is changed to a member of the original beneficiary's family. A rollover to another 529 plan for the same beneficiary or a family member is generally not taxable if paid to the other plan within 60 days, with a generally one-per-12-months limit for the same beneficiary. A withdrawal that is not matched by qualified expenses is addressed in the taxable-withdrawal section above. The IRS also describes a limited rollover from a 529 account to the beneficiary's Roth IRA. The SEC lists conditions, including a $35,000 lifetime limit, annual Roth IRA contribution limits, an account open at least 15 years, and funds held in the account at least five years. Read Publication 970 and ask your plan before moving money.

What should I send through the inquiry form?

Describe the question you want to ask. Do not submit tax returns, plan statements, account numbers or other confidential financial documents.

Sources

Internal Revenue Service: Publication 970, Tax Benefits for Education, Topic no. 313, Qualified tuition programs (QTPs), 529 plans: Questions and answers and Instructions for Form 1099-Q.

U.S. Securities and Exchange Commission, Investor.gov: An Introduction to 529 Plans.