Back-to-School Saving Opportunities Using a 529 Plan

Jul 26, 2023

By Theresa Cagle Fry, Senior Vice President and Manager IRAs, Retirement & Education Planning
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It’s hard to believe that for most students, summer is coming to an end.  Back-to-school ads started in early July and for some students, orientation for the new school year begins in a few short weeks. If you feel summertime slipped away too quickly, or the years are flying by too swiftly, you are not alone.

For students heading back to school, there are costs associated with their education whether they attend public, private or religious school.  The costs vary greatly based on your geographic location, and whether the student is attending elementary, secondary or a post-secondary college, university or trade school.

Consider these examples:

  • The National Retail Federation reports that families plan to spend, on average, $890 on back-to-school supplies this year.
  • The national average for private elementary school tuition is $11,317 per year and for high school it is $15,780[i].
  • For a four-year public in-state college or university, costs for tuition, fees, and room and board averaged $23,250 for the 2022-2023 academic year, while out-of-state averaged $40,550[ii].

When you consider that most spending on education comes out of the parent’s current income, you should know there’s a better way to plan for some of those future costs.  One of the more efficient ways to save for your children’s or grandchildren’s education is a “529 education savings plan.”

529 education saving plans allow you to save and invest for a variety of educational needs while allowing the student to attend the educational institution of their choosing.  529 savings plans allow tax-free spending on “qualified” education expenses.  The expenses that generally qualify for colleges and universities are tuition and fees, room and board, books, and supplies.  However, tax-free withdrawals from a 529 savings plan are not just for college or university costs.  Trade schools or registered apprenticeship programs are also included if they qualify for federal student aid.  529 plan savings can also be used for repayment of up to $10,000 in student loans for the beneficiary or siblings of the beneficiary, and up to $10,000 a year may be used for K-12 tuition costs.

The contributions you make are considered taxable gifts, subject to the annual gift limit of $17,000.  However, you can elect to use the special five-year advanced gifting option and make a gift of $85,000 at one time.  If you choose this funding method, you must forgo other taxable gifts to the student in the year of the contribution and for the next four years.  A married couple can double those amounts by each making a gift to the same student.

Contributions you make to a 529 education savings plan are invested, and the earnings are tax deferred.  Although there is no federal income tax deduction for the contributions made, a state income tax deduction or credit may be available.

If you are concerned that the 529 savings plan could go unused, there are flexible options available:

  • First, you could change the beneficiary to another eligible family member, including any siblings or children of the current beneficiary.
  • You could elect to take a withdrawal that is not for qualified educational expenses. Non-qualified withdrawals will cause the earnings to become taxable and subject to a 10% tax penalty.
  • Beginning in 2024, long-term unused 529 savings plan balances can be rolled over to a Roth IRA for the beneficiary/student. There are some limits that apply when rolling over a 529 to a Roth IRA, such as the beneficiary must have earned income, the rollover cannot be more than the annual Roth IRA contribution amount applicable for that year (currently $6,500), and no more than $35,000 can be moved over the lifetime of the beneficiary.    Balances moved cannot include any contributions or earnings from the prior five years, and the 529 account must have been in place for at least 15 years.

Time doesn’t have to be an enemy.  In fact, time is one of the best components of an education savings strategy. If this summer came to an end too soon for you, don’t let any more time slip through your hands.  Contact your Benjamin F. Edwards financial advisor today to get more information about how to design an education savings strategy or start a 529 education savings plan.


IMPORTANT DISCLOSURES:  The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.


[i], Average Private School Cost (2023)

[ii] The College Board, “Trends in College Pricing and Student Aid 2022”, Table CP-1