529 College Savings Calculator 2026

Federal treatment is straightforward: no deduction going in, no tax on growth, no tax on qualified withdrawals. State treatment varies considerably, and most states offering an income tax provide a deduction or credit for contributions — sometimes only to their own plan, sometimes to any.

Qualified expenses are broader than tuition alone: tuition and fees, books and required supplies, computers and internet access, and room and board provided the student is enrolled at least half-time. Since 2018 the definition has extended to K–12 tuition up to $10,000 a year, and to student loan repayment up to a $10,000 lifetime limit per beneficiary.

Non-qualified withdrawals are taxed on the earnings portion and carry a 10% penalty on those earnings. The original contributions come out untaxed, because they were after-tax money going in.

Several exceptions waive the penalty though not the income tax — a scholarship received by the beneficiary, attendance at a US military academy, or the beneficiary's death or disability.

This is where ownership matters more than most families realise.

A 529 owned by a parent is reported as a parental asset and assessed at a maximum of about 5.64% in the federal aid formula. A $50,000 balance therefore reduces aid eligibility by at most roughly $2,800.

A 529 owned by the student is assessed far more heavily — up to 20% of the balance. The same $50,000 would reduce eligibility by around $10,000, which is why parental ownership is almost always preferable.

Grandparent-owned accounts historically caused a worse problem: distributions counted as untaxed student income at up to 50%. FAFSA simplification has removed that treatment, so grandparent 529s no longer carry the penalty they once did — a genuine change worth knowing, since much older advice still warns against them.

You are not restricted to your own state's plan — any state's 529 can be used for a school anywhere. But if your state offers a tax deduction limited to its own plan, that benefit usually outweighs a modest difference in fees.

Where no state benefit exists, compare on cost. Expense ratios vary widely between plans and, as with any long-horizon investment, a difference of half a percentage point compounds into a substantial sum over eighteen years.

Most plans offer age-based portfolios that shift automatically from equities toward bonds and cash as enrolment approaches. This matters more than it does in retirement saving, because the horizon is fixed and short: a market fall in the year before enrolment cannot be waited out.

The common error is staying aggressive too long. Money needed in two years does not belong in equities, however good the long-run return — the same logic that governs a house deposit applies here, with a harder deadline.