How much should I save in a 529 plan?

What is a 529 plan?

A 529 plan is a state-sponsored, tax-advantaged account for education savings. You contribute after-tax dollars, the money grows tax-free, and withdrawals are tax-free when spent on qualified education expenses. Roughly two-thirds of states with an income tax add a deduction or credit for contributions on top of that.

A worked example: the gap most families don't see

Take the numbers this page loads with — a three-year-old, $10,000 already saved, $300 a month going in, a 6% return, a college that costs $25,000 a year today, and 5% college inflation:

• Fifteen years of compounding turns $10,000 plus $300 a month into roughly $110,000 by the fall your child enrolls.
• But $25,000 a year inflated at 5% for fifteen years is about $52,000 for freshman year alone — and four years, each one more expensive than the last, totals roughly $224,000.
• That's about 49% funded. Closing the whole gap from here would take about $696 a month, not $300.

Nothing in that example is unusual, and that is the point. The trap is anchoring on today's sticker price: a family that saves "enough for $25,000 a year" is saving for less than half the bill. Run your own numbers above before you decide what to contribute.

Monthly 529 savings by the child's age

Starting earlier matters more than finding a perfect fund. The table holds every other input constant — no starting balance, college begins at 18, $25,000 of annual cost today, four years to fund, 5% college inflation, and a 6% annual return — and changes only the child's current age:

These are full-funding benchmarks, not recommended minimums. With no starting balance, a 50% funding target is roughly half the monthly figure; money already in the 529 reduces it further. Use the calculator for your actual starting balance, school cost, and target instead of treating the table as a universal answer.

What counts as a qualified expense

Tax-free withdrawals have to match qualified costs in the same calendar year. Those include:

• Tuition and mandatory fees at any eligible college, university, community college, or vocational school — including many schools abroad.
• Room and board, capped at the school's published cost-of-attendance allowance, if the student is enrolled at least half-time. Off-campus rent qualifies up to that same allowance.
• Books, supplies, and required equipment, plus a computer, internet access, and software used primarily by the student while enrolled.
• Registered apprenticeship fees, books, supplies, and equipment.
• Student loan repayment — a lifetime cap of $10,000 per beneficiary, and a separate $10,000 for each of the beneficiary's siblings.
• K-12 tuition, subject to a federal annual cap per beneficiary (long set at $10,000; 2025 legislation raises that cap and widens the eligible K-12 costs starting in 2026 — confirm the current figure with your plan before withdrawing).

Transportation, health insurance, and student activity fees that aren't required for enrollment do not qualify — a common and expensive surprise in the first semester.

How much can you put in?

There is no federal annual contribution limit on a 529. Two other limits do the work instead:

• The gift tax annual exclusion. Contributions are gifts to the beneficiary. In 2026 you can give $19,000 per beneficiary ($38,000 for a married couple splitting gifts) with no gift-tax filing.
• The five-year election. You can front-load five years of exclusions in one go — $95,000 per donor, or $190,000 for a couple, in 2026 — by electing to spread the gift over five years on a gift-tax return. Contributing early is what buys the compounding, so this is the single biggest lever grandparents have.
• The state aggregate limit. Each state caps the total balance per beneficiary, typically somewhere between about $235,000 and $600,000. Once you hit it, growth can continue but new contributions stop.

How the state tax deduction actually works

This is the part that varies most and gets described worst. The mechanics:

• It's a state break, never federal. There is no federal deduction for 529 contributions.
• Most states require their own plan. A handful of "tax parity" states give the deduction for contributions to any state's 529; in the rest, contributing to an out-of-state plan forfeits the break entirely.
• It is usually capped per year, often somewhere between $2,000 and $10,000 of contributions per return, and a few states allow the full amount. Some states offer a credit rather than a deduction, which is worth the same dollars to every taxpayer instead of scaling with your bracket.
• What it's worth is the deductible contribution multiplied by your state marginal rate. A $10,000 deduction in a state with a 5% income tax saves $500 — real money, but an order of magnitude smaller than the tax-free growth on a plan funded early.
• Some states claw it back if you later take a non-qualified withdrawal or roll the account to another state's plan.

Nine states have no income tax at all, so there is nothing to deduct — pick the plan with the lowest fees and best investment lineup instead. See the state pages for New York, California, New Jersey, Virginia, Ohio, Illinois, and Florida.

What happens if the money isn't needed

Over-funding used to be the main argument against a 529. It is much weaker now:

• Change the beneficiary to a sibling, cousin, niece, nephew, grandchild — or yourself — with no tax consequence.
• Roll it to a Roth IRA for the beneficiary. Under SECURE 2.0 the lifetime cap is $35,000, the 529 must have been open at least 15 years, contributions made in the last 5 years (and their earnings) are ineligible, the beneficiary needs earned income, and each year's rollover counts against their annual IRA limit ($7,500 in 2026) — so it takes several years to move the full amount.
• Take a non-qualified withdrawal. Only the earnings portion is taxed, at the recipient's ordinary rate, plus a 10% penalty. If the student wins a scholarship, you can withdraw up to the scholarship amount with the penalty waived — the earnings are still taxed.

The mistakes that cost the most

• Saving against today's price. See the worked example above — at 5% inflation over fifteen years, the real bill is roughly double.
• Waiting for a "spare" budget. A dollar contributed at age two has sixteen years to compound; the same dollar at age fourteen has four. Starting small beats starting later.
• Staying stock-heavy into senior year of high school. Age-based portfolios glide toward bonds and cash for a reason — a 30% drawdown the spring before tuition is due cannot be recovered in time.
• Contributing to an out-of-state plan in a state that only rewards its own — you give up the deduction for nothing unless the fee difference is large.
• Funding college before retirement. Your child can borrow for tuition; nobody lends for retirement. If the two compete, the retirement plan usually has to win.
• Aiming at 100%. Aid, scholarships, the student's own earnings, and cash flow during the college years all count. Many families deliberately target a third to two-thirds and treat the rest as a live budget item.

Frequently asked questions