You’ve taken your first withdrawal to pay for your loved one’s college expenses. But can you still make contributions into your account now that you’re actively using it? Yes! Even if your student is enrolled in a two-year, four-year, graduate, vocational or professional school, you can still save in a 529 plan. The tax benefits, after all, are still available to your Invest529® or CollegeAmerica® account.
The Tax Advantages of Continuing to Save
Even though you are making withdrawals from your 529 account, you still have access to the benefits of tax-free earnings. That means even if the funds are in your account for a shorter window of time, any growth to your investment is yours to use for qualified higher education expenses.
Withdrawals used to cover those expenses are tax-free at federally accredited programs, and include recurring qualified costs that your student will be expected to pay as long as they are enrolled. Qualified higher education expenses include, among others:
- Tuition
- Room and board
- Computer equipment and technology fees
- Books, supplies and equipment related to enrollment and classes
As is the case with all 529 college savings plans, the burden of proof for tax purposes for qualified expenses and withdrawals is on the account owner. Retain all documentation of your beneficiary's room and board and other 529-qualifed expenses.
Eligible Virginia residents with Invest529 or CollegeAmerica accounts have the additional tax-related benefit of being able to deduct their contributions from their Virginia state income taxes. Virginia taxpayers may deduct contributions up to $4,000 per Virginia529 account per year with an unlimited carryforward to future tax years, subject to certain restrictions.
There is a Contribution Holding Period
As you continue to contribute to your account, remember the new funds must remain in the Virginia529 account for at least five business days before they can be used to cover college costs. This hold period allows time for your funds to be added to your account to be ready to use.
Let Invest529 continue to help you save for your loved one’s future ---- and maximize your tax advantages --- whether your student is reviewing their post-high school options, or they’re currently enrolled!
FAQs
Unless your child is graduating from college this spring, it's never too late to save for college. Even if your child is currently attending a two-year, four-year, graduate, vocational or professional school, you can still save in a 529 plan.
Can I continue to contribute to 529 while child is in college? ›
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 and tax-free income on the investments.
When should you stop contributing to a 529? ›
529 college savings plans do not have contribution deadlines. You may contribute to a 529 plan at any time throughout the year, and you do not have to stop making contributions once the beneficiary reaches a certain age.
What happens to a 529 account when the child turns 18? ›
In most states, that means age 18, though in some states the age threshold may be higher. The custodian can't change the beneficiary or account owner. Once the account owner/beneficiary becomes an adult, they assume control over the 529 plan.
What happens to 529 if kid gets a full scholarship? ›
What if my child gets a full or partial scholarship? If the beneficiary receives a scholarship that covers the cost of qualified expenses, you can withdraw the funds from your account up to the amount of the scholarship without incurring the 10% federal tax penalty on the earnings portion.
What happens to 529 when child turns 25? ›
There are no time or age limits on using a state 529 college savings plan. Money can be kept in a 529 plan indefinitely. 529 plans can be used for graduate school, not just undergraduate school, and can be passed on to one's children.
What is the 30 year rule for 529 plans? ›
The assets in a 529 savings plan are available 30 years after high school graduation — and even then can be transferred to another beneficiary.
What is the 5 year rule for 529 plans? ›
The 5-Year Election
Individuals may contribute as much as $90,000 to a 529 plan in 2024 ($85,000 in 2023) if they treat the contribution as if it were spread over a five-year period. The 5-year election must be reported on Form 709 for each of the five years.
What happens to 529 when child turns 30? ›
529 plans do not have specific withdrawal deadlines. A 529 plan account owner is not required to take a distribution when the beneficiary reaches a certain age or within a specified number of years after high school graduation, and funds can remain in the 529 plan account indefinitely.
What is the 5 year 529 contribution rule? ›
Contributions between $18,001 and $90,000 are spread equally over five calendar years. That's 20% of the elective amount per year. No exceptions. No wiggle room.
On the 2024-25 FAFSA, students are no longer required to report cash gifts from a grandparent or contributions from a grandparent-owned 529 savings plan. Because of this, grandparents can now use a 529 plan to fund a grandchild's education without impacting their financial aid eligibility.
Can I convert my 529 to a Roth IRA? ›
As of January 1, 2024, owners of 529 plan accounts can make tax and penalty-free rollovers to Roth IRA retirement plan accounts, subject to certain limitations. This has been welcome news to many families who worried about having unused or leftover funds in a 529 plan account.
Can I roll a 529 into a Roth IRA? ›
Starting in 2024, beneficiaries of 529 college savings accounts are permitted to do a tax-free rollover to a Roth IRA.
Who gets unused 529 money? ›
If your child decides not to go to college or only uses part of the total funds while in school, you can transfer the remaining funds to another family member who is planning to attend college.
What is the maximum 529 contribution per child? ›
Annual 529 plan contribution limits
The IRS considers contributions to a 529 plan as completed gifts for federal tax purposes. As of 2024, up to $18,000 per donor per beneficiary ($17,000 in 2023) qualifies for the annual gift tax exclusion.
What is the max amount you can put in a 529? ›
529 Plan Contribution Maximums by State
| State | Maximum |
|---|
| California | $529,000 |
| Colorado | $500,000 |
| Connecticut | $550,000 |
| Delaware | $350,000 |
47 more rowsFeb 15, 2024
529 plan distributions receive favorable treatment on the FAFSA. Qualified distributions from a student-owned or parent-owned 529 account to pay for this year's college expenses are not included in the “base-year income” that would reduce college financial aid eligibility.
How much should I put in my child's 529 per month? ›
Ideally, you should save at least $250 per month if you anticipate your child attending an in-state college (four years, public), $450 per month for an out-of-state public four-year college, and $550 per month for a private non-profit four-year college, from birth to college enrollment.
Do 529 contributions have to be made in calendar year? ›
How late can I contribute to a 529 plan? In most states, you should contribute to your 529 college savings plan by the end of the year, i.e., December 31, to maximize any state tax breaks associated with those contributions. But in other states, you can contribute until that state's tax filing deadline next year.
Can parents deduct 529 contributions? ›
In short, 529 contributions are not tax deductible on the federal level. However, some states consider contributions tax deductible.
