The SEC’s Office of Investor Education & Advocacy is issuing this Investor Bulletin to answer questions that may arise when investing in a 529 plan account. Please also see our companion Bulletin, An Introduction to 529 Plans, for background information on the plans.

1.  Who can use a 529 plan & what can it be used for?

A 529 plan can be used to save for certain educational expenses for any student in your family, including yourself. These educational expenses include college or other post-secondary education (qualified higher education expenses), as well as tuition for elementary or secondary public, private, or religious schools. Education savings plans can also be used to pay for certain expenses required for participation in registered apprenticeship programs & qualified education loan repayments up to $10,000 total per beneficiary. 

The person who opens the 529 plan account is called the account holder or the saver. The person the account is opened for is called the beneficiary or the student. The account holder & the beneficiary can be the same person.

2.  When should I start saving in a 529 plan account?

You should consider saving as early as you can, taking into account your family’s overall financial situation & other financial goals you may have. One of the benefits of 529 plans is the tax-free earnings that grow over a period of time. The longer the money is invested, the more time it has to grow & the greater your tax benefits. You will lose some of these potential benefits if you withdraw money from a 529 plan account within a short period of time after it is contributed.

3. Should I save through a 529 plan or are there other ways to save for an education? 

Investing in a 529 plan is only one of several ways to save for an education. Other tax-advantaged ways to save for an education include Coverdell education savings accounts, Uniform Gifts to Minors Act (UGMA) accounts, Uniform Transfers to Minors Act (UTMA) accounts, tax-exempt municipal securities, & savings bonds. Saving or investing for an education in a taxable account or with other types of investments are also options. Each option for saving for an education has advantages & disadvantages & may have a different impact on your student’s eligibility for financial aid & your tax situation. For additional information on tax implications, please consult a tax adviser.

4.  Should I invest in a 529 education savings plan or a 529 prepaid tuition plan?

In addition to traditional 529 education savings plans that allow savers to open investment accounts to save for an education, some states & a group of private colleges also offer 529 prepaid tuition plans.

Education savings plans are typically more flexible than prepaid tuition plans. They usually don’t have residency requirements, offer different kinds of investment options, & can generally be used at any college or university for tuition, mandatory fees & room & board. They can also be used to pay for tuition at elementary & secondary schools, certain expenses required for participation in registered apprenticeship programs, & qualified education loan repayments up to $10,000 total per beneficiary. As with any investment, however, education savings plans also expose your saved money to investment risk, including loss of principal.

Prepaid tuition plans allow savers to purchase units or credits for the beneficiary to use in the future at participating colleges & universities. The saver is essentially pre-paying future tuition & mandatory fees at the current prices of tuition & mandatory fees. The participating colleges & universities are typically public, in-state institutions in the state that sponsors the plan. Prepaid tuition plans are not as flexible as education savings plans because the credits can only be used for future tuition & mandatory fees at certain schools. If the beneficiary does not attend a participating college or university, they can typically still receive money from the plan to help pay for college tuition & mandatory fees, but the amount is determined by the particular plan. The plan may only pay a small return on the original investment, depending on how the plan calculates your return. When considering a prepaid tuition plan, you should understand the restrictions & limitations of the plan, including the extent to which your money is guaranteed & what happens to your money if the beneficiary doesn’t attend a participating college or university.

Both types of 529 plans offer tax benefits & have a similar impact on financial aid for post-secondary education.

Please see the Investor Bulletin, An Introduction to 529 Plans, for more information about the differences between education savings plans & prepaid tuition plans.

5.  If I choose a 529 education savings plan, which plan should I choose? 

You can invest in almost any state 529 education savings plan or even in multiple plans regardless of where you live. You should compare plans to determine which one is right for your family, but a good place to start is your state’s plan. Many states offer tax incentives or other benefits for their residents.  Make sure you do your research because these benefits vary depending on the state & the 529 plan. In addition, state & federal laws that affect 529 plans could change.

But don’t stop there. There can be significant differences in costs from plan to plan, so find out how your in-state plan compares on costs. Investing in a lower-cost “out of state” plan may outweigh the benefits of investing in a higher-cost in-state plan, even taking tax incentives or other benefits into consideration.

Finally, there may be reasons other than fees & residency benefits that make one plan more desirable for your family. These could include the investment options available or the ability to change the account holder or beneficiary.

You should understand all of the limitations or restrictions of any plans you are considering.

6. If I have the option, should I go through a broker or open a 529 account directly?

Many states have both direct-sold & broker-sold 529 education savings plans available. If you already have a financial professional or want someone who will help you with the process of selecting a plan &/or plan investments, you may consider opening an account in a broker-sold 529 plan. But, keep in mind that broker-sold plans usually have additional fees. If you prefer not to use the services of a broker or are generally comfortable making your own investment decisions, you should consider opening an account directly with the state sponsor or program manager.

7.  How do I choose among the investment options in a 529 education savings plan?

Each education savings plan typically has a range of investment options, & you can allocate your money among several investment options or just one.

When considering your options, you should think about the fees of each investment option (usually the lower the better, all things being equal), & the level of risk & potential investment return you want (both of which may depend on how long until your student will use the money).  For example, if you plan to withdraw money from a 529 plan account within a short period of time after it is contributed to pay for elementary or secondary school tuition, you may have a shorter time horizon for your investment to grow & want to pick less risky investments.   

The investment options often include various mutual fund & exchange-traded fund (ETF) investments & a principal-protected bank product. Education savings plans also may include static fund portfolios & age-based portfolios (sometimes called target-date portfolios). These portfolios include a combination of different types of ETFs &/or mutual funds & are designed to help diversify the risk in your account. Typically age-based portfolios automatically shift your funds into more conservative investments as the beneficiary gets closer to college age, but static fund portfolios will keep the same mix of investments. Be aware that some of these portfolios sometimes have higher fees.

You should consider how often you want to review the investments & allocations, & potentially reallocate or change your options as your student gets older. Current federal tax law allows you to change investment options up to twice a year or when you change the plan’s beneficiary. Consider whether you want to be in control of those changes, or whether you want it to happen automatically (for example, with an age-based portfolio). 

8.  How should I fund the 529 account?

You should save money in your 529 account in a way that makes sense for your family. Many plans have a minimum initial deposit, often $250 or lower, & a minimum for subsequent deposits. Sometimes the minimum for subsequent deposits is lower if you set up an automatic investment plan, which may also help you stick to your savings goal. Keep in mind that states that offer tax benefits for contributions often limit the size of the annual contribution that is eligible for the tax benefit although you can contribute more if you want to save more money. Also, most plans have a lifetime limit on total contributions.

9.  What do I do while my student is in school?

You should consider how you are going to withdraw & use the money from your student’s 529 account to fund his or her education. To begin with, consider whether you will use money in the 529 account earlier to pay for elementary or secondary school tuition or later for college or apprenticeship expenses. Before your student gets to college, you may need to consider how having money in your 529 account for future qualified higher education expenses might affect financial aid for your student’s elementary or secondary school tuition. Once your student has enrolled in college, you may want to consider, for example, what types of financial aid your student is receiving, how you want to structure any loans during the years your student is in college, the impact using the 529 funds will have on subsequent years’ financial aid awards, & how much money you have available in the 529 account or in other savings vehicles.

Regardless of when you use the money, consider how you want to allocate your withdrawals among the investments if you have multiple investments. This is especially true if you have chosen different investment options for elementary or secondary tuition & for qualified higher education expenses. For example, you may want to redeem a certain investment first or make withdrawals proportionately among all your investments. Also, if your student is the beneficiary of multiple 529 plans, you should consider how you want to allocate your withdrawals among the plans.

If you can afford it, there may be benefits to continuing to contribute to the 529 account until your student completes college. You can continue to get any state income tax benefits on the contributions & tax-free income on the investments. 

10.  What can I do if my student didn’t use all the money in the 529 account?

Some families may end up with money in a 529 account after their student is finished with school. If you use the money for purposes other than paying for qualified higher education expenses or the other expenses detailed above, the earnings portion of these withdrawals will be subject to federal income tax as well as a 10% penalty. These withdrawals may also be subject to state income tax if you claimed a deduction or credit for your contributions. If your student received a scholarship, you can generally withdraw money from a 529 account up to the amount of the scholarship without a penalty, but you will still have to pay taxes on any income earned.

You may be able to avoid paying any penalties & taxes if you change the beneficiary of the 529 account or transfer the assets to another 529 account, but the recipient in both instances would need to be a person in the same family. Or you could keep the savings in the 529 account if your student is considering graduate school. In addition, you can rollover funds in a 529 account into a Roth IRA account for the same beneficiary. These rollovers have some restrictions. For example: the total rollover amount is limited to $35,000; annual Roth IRA contribution limits apply; the 529 account must have been open for at least 15 years; & the funds you rollover must have been in the 529 account for at least five years. Make sure you understand the tax implications of investing in a 529 account & consider whether to consult a tax adviser.

Additional Information

You can find the offering circular for most 529 plans through the College Savings Plan Network website, which has a link for state 529 plans.

You can learn more about the mutual funds & ETFs that are investment options in an education savings plan by reading each product’s prospectus, statement of additional information, & semiannual & annual shareholder reports, which are available in the SEC’s EDGAR database. 

You can read about the impact fees & expenses have on your investment portfolios in the SEC’s Office of Investor Education & Advocacy’s Updated Investor Bulletin:  How Fees & Expenses Affect Your Investment Portfolio.

Consider using’s compound interest & savings goal calculators to assist you in determining how much money you will need to save or how to fund your account.

You can find information about investment advisers who manage the underlying mutual funds & ETFs or the 529 plans themselves using the Check Out Your Investment Professional Tool on You can also look up the brokers who sell 529 plans.  If you have questions about using the search tool, read our Investor Bulletin: How to Use the Investment Professional Search Tool.

This bulletin represents the views of the staff of the Office of Investor Education & Advocacy.  It is not a rule, regulation, or statement of the Securities & Exchange Commission (“Commission”).  The Commission has neither approved nor disapproved its content.  This bulletin, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, & it creates no new or additional obligations for any person.