Understand How 529 Plans Can Benefit You

What Is a 529 Plan? How Does It Work?

College savings plans, also called 529 plans, are accounts specifically designed to help you save for education expenses in a tax-advantaged way. Here’s how it works:

  • You create and control an account on behalf of your beneficiary or future student. 
  • You make contributions to your account using after-tax dollars. 
  • Any earnings you accrue are tax-deferred while invested and tax-free when used for qualified education expenses.

That means you can use your full balance for expenses like tuition and fees, room and board, and books and supplies at any eligible public or private college, university, or vocational school anywhere in the U.S. A 529 plan can also be used tax-free to cover certain tuition expenses at K–12 public, private, and religious schools.¹

Investing in a 529 plan can make it easier to save for the future with benefits designed to help you reach your unique savings goals.

What Are the Benefits of a 529 Plan?

Growth Potential

529 plans offer the potential of higher returns and tax-advantaged growth compared with lower-yielding bank accounts.²

In fact, if you consider saving $200 per month in a bank account versus investing that same amount in a 529 plan, you could be leaving a lot of money on the table over the course of 18 years. Assuming approximate earnings of 0.09% interest in a bank account versus 6% earnings with a tax-deferred investment account, like a 529 plan, that could mean over $30,000 more in your pocket.3

Tax Advantages

In addition to any growth being tax-deferred, you may also be eligible for a state income tax deduction depending on your state of residence. If you live in Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio, or Pennsylvania, contributions to any 529 plan are eligible for the state’s income tax deduction.4

Low Impact on Financial Aid 

A 529 plan owned by a custodial parent for a dependent student typically counts as a parental asset on the FAFSA, which has a significantly lower impact on need-based aid than parental or student income. 

Not Just for Parents

Anyone can open and contribute to a 529 plan, which can be helpful when friends and family need ideas for holiday or birthday gifts. It's a great way to save for college whether you're a grandparent, family member, or family friend. There are no limits on age, income, or relationship to the beneficiary.

Control and Flexibility

The account holder—not the beneficiary—retains control of the account. You can:

  • Change your beneficiary at any time.
  • Increase or decrease contributions.
  • Take distributions from your account at any time. Your contributions are not taxed or penalized when you take a distribution. Any earnings are federally taxed when you take a distribution for something other than a qualified education expense.5

1While distributions from 529 college savings plans for elementary or secondary education tuition expenses are federally tax-free, state tax treatment will vary and could include state income taxes assessed, the recapture of previously deducted amounts from state taxes, and/or state-level penalties. You should consult with a tax or legal advisor for additional information. 

2Unlike a traditional bank account that offers Federal Deposit Insurance Corporation (FDIC) protection, investments in 529 plans are generally not guaranteed, and you could lose money, including your principal, by investing in them. There may be other material differences between savings accounts and 529 college savings plan accounts that should be considered prior to investing.

3This representation demonstrates the difference between hypothetical rate of returns in a bank account and a 529 college savings plan account, compounded monthly, but not between any two specific products. This example doesn't represent the return on any particular investment and these rates are not guaranteed.

4List of tax-parity states as of April 2023. If you have questions about your specific situation, please speak with a state tax professional. 

5Any earnings are federally taxed when a nonqualified distribution is taken, and a 10% federal penalty may be applied. State taxes vary.

Why the T. Rowe Price College Savings Plan?

The T. Rowe Price College Savings Plan has been helping families save for college since 2001. This plan offers numerous advantages.

Strong Investment Performance

Morningstar awarded the T. Rowe Price College Savings Plan a "Silver" rating in 2023.6

Multiple Investment Options

Choose from two portfolio categories and a variety of portfolio options within them. The enrollment-based portfolios are targeted to an expected school enrollment date. They start out invested more aggressively and then adjust over time in an effort to reduce risk as the target date nears. Our static portfolios offer a fixed strategy, which means the underlying allocation does not change over time.

Affordability and Ease

You can open an account today in about 15 minutes with as little as $50 a month or a $250 initial contribution. There is no annual account fee.

Powerful Tools and Resources

We offer tools and resources that help you plan and prepare for your child's academic future.

  • GoTuition® gifting portal: An online tool that makes it easy for you to ask friends and family to contribute to your child’s 529 plan.
  • College Savings Calculator: This user-friendly tool allows you to determine how much you need to save now to reach your college savings goals.
  • College Savings Library: Access articles by T. Rowe Price Certified Financial Planners that will help you strengthen your college savings strategy.
  • College Savings Specialists: T. Rowe Price specialists are available Monday through Friday from 8 a.m. to 8 p.m. ET to help you with any questions.

Let’s Debunk Some Myths About 529s

Whether it's 529 tax advantages, the benefits of a 529 plan, or how 529s work, there are many myths about what college savings plans can and cannot do.


Plan and Prepare for Your Child’s Academic Future

We are committed to helping families plan and save for future education expenses. Our tools and resources will help you feel confident that you're making the best decisions for your family.

Take the First Step in Your College Savings Journey

With all the competing priorities, it's easy to put off opening a 529 account. The good news is that we've made it easy to understand how to get started with a smart plan for your future.

Frequently Asked Questions

Who can open an account?


Any U.S. citizen or resident alien can open an account, as can trusts, corporations, and other organizations...

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How much can I contribute to my beneficiary’s account(s)?


You can open an account with recurring contributions of $50 per month, or a minimum initial contribution of $250...

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