Are 529 Plans Only for Public Colleges?

Key facts

  • 529 college savings plans offer tax-advantaged savings to fund qualified higher education expenses at eligible institutions.
  • Funds can be used at 529 eligible institutions, which includes any college, university, vocational school, or other post-secondary institute recognized by the Department of Education.

As the cost of college continues to rise, saving for college is a top priority in many families. After all, saving enough for college in advance can spare college graduates of starting their adult lives with massive student debt.

One of the most challenging aspects of planning for your child’s future is ensuring that she will have the resources she needs to attend her dream school. Avoiding the burden of student loans is high on many parents’ wish lists for their little ones, and the solution is to set money aside now for future college expenses.

One of the most effective ways to save is through a 529 college savings plan. However, many parents worry that this type of savings account will limit children’s choices when it is time to select a school.

529 College Savings Plan Basics

In an effort to make saving for college easier and more affordable for families, the IRS created a special type of account called the 529 plan. It has become a leading tool for parents to set aside funds for education in a tax-advantaged account.

As long as withdrawals are used for qualified college and graduate school expenses at eligible institutions, no federal taxes are assessed on earnings and distributions. In many cases, states offer additional tax incentives to encourage college savings.

How 529 Savings Plans Impact College Choice

Though federal tax code makes 529 plans possible, each state administers its own 529 plan. This leads some people to believe that there are limits to college choice when tuition is paid through a certain state’s 529 account. Fortunately, students can use their 529 plans for education expenses at almost any college or university in the United States. In fact, some international schools even qualify for as an eligible institution under the 529 plan.

For example, families living in Florida can elect to invest in Alaska’s 529 plan. When the beneficiary of the plan is ready to attend college, she can choose any eligible school nationwide, whether it is a private university in California or a public institution in Vermont.

Specifically, students can choose to attend a public or private college or university in any state regardless of the state in which the account was opened, as long as the institution meets the qualifying criteria:

  • Accredited by the appropriate agencies
  • Offers post-secondary credit courses for associate degrees, bachelor’s degrees, graduate degrees and/or professional degrees
  • Eligible to participate in student financial aid programs offered by the United States Department of Education

Note that under limited circumstances, vocational and proprietary schools can qualify for payment with 529 plan funds. You can check eligibility with the admissions office of your school, or use one of the eligibility look up tools available online.

The most important thing to know is that college choice is not limited by 529 plans. Parents can set accounts up now with confidence, and students can later attend any eligible college or university.


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This article is not intended as tax advice, and Wealthfront does not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should confer with their personal tax advisors regarding the tax consequences based on their particular circumstances. Wealthfront assumes no responsibility for the tax consequences to any investor of any transaction. Investors and their personal tax advisors are responsible for how the transactions in an account are reported to the IRS or any other taxing authority.

For information on any 529 college savings plan contact the plan provider for details on the investment objectives, risks, charges, expenses, and other important information included in the Plan Description and Participation Agreement; read and consider it carefully before investing.

Please Note: Before investing in any 529 plan, you should consider whether you or the beneficiary’s home state offers a 529 plan that provides its taxpayers with favorable state tax and other benefits that are only available through investment in the home state’s 529 plan. You also should consult your financial, tax, or other advisor to learn more about how state-based benefits (or any limitations) would apply to your specific circumstances. You also may wish to contact directly your home state’s 529 plan(s), or any other 529 plan, to learn more about those plans’ features, benefits and limitations. Keep in mind that state-based benefits should be one of many appropriately weighted factors to be considered when making an investment decision.

Earnings on nonqualified withdrawals are subject to federal income tax and may be subject to a 10 percent federal tax penalty, as well as state and local income taxes. The availability of tax and other benefits may be contingent on meeting other requirements.