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Lesson · Family · tax

Tax-free for school. Now tax-free for retirement too.

A 529 grows tax-free for education — and under new rules, unused funds can roll into the beneficiary's Roth IRA. It's an education account and a backdoor Roth starter.

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$10K→$20K
K-12 tuition, per child, per year — cap rising in 2026

THE STRUCTURE

It's a state plan, not a federal one

No tax deductionDeduction or credit
Growth is tax-freeCaps $2K to unlimited
Withdrawals tax-freeNo income tax, no break

WORKED EXAMPLE

Deduct $10,000 — what it saves

5% state rate$500
7% state rate$700
0% — FL, TX, TN$0

How it works

How to open one this week

1
Go to your state's plan siteNot a brokerage — search your state plus 529
2
Look up your deduction capPer child, per year, before you fund it
3
Pick from the state's menuUsually age-based portfolios
4
Automate the contributionMonthly beats a December scramble

COMPARE

529 vs Coverdell ESA

High contribution room$2,000 per year cap
State menu onlySelf-directed
Maybe a state deductionNo deduction
Tax-free growthTax-free growth

Key points

Rules that bite

✓
Non-qualified = 10% penalty
✓
Earnings taxed as income
✓
Deduction can be recaptured
✓
Gift limit ~$19K per giver
✓
Fund 5 years at once
✓
Leftovers to a Roth IRA

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The The 529 Savings Plan field guide — one page

The strategy, the checklist, the key numbers, and links to the actual tax code. Print it, take it to your CPA. Free, no strings.

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Field guide · PDF

The 529 Savings Plan

Cliff notes + checklist + the law

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The law behind it

Primary sources

Verify against the source before you rely on it. This is education, not legal or tax advice.

26 U.S.C. Sec. 529 — Qualified tuition programs — tax-free growth for education, and the rules on qualified distributions.law.cornell.edu/uscode/text/26/529
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