The Truth About 529 Income Limits

Key facts

  • Many tax-advantaged savings accounts have income limits that determine contribution eligibility.
  • There are no income limits for 529 plan contributions.
  • There are income limits for Coverdell ESA contributions.
  • Any U.S. citizen or resident alien with a valid social security number or taxpayer identification number at least 18 years old can open a 529 account.

Ensuring there will be funds available to meet college costs means careful planning. Setting money aside in a tax-advantaged education savings plan is the go-to choice for many families. However, there is a long-standing myth that strict income limits prevent some from participating in a 529 college savings plan. The truth, however, is many are eligible to open an account, regardless of their tax bracket.

Debunking the 529 Income Limits Myth

Many people still believe that income limits apply to 529 plans, and nothing could be further from the truth. The program was designed to make it as easy as possible to put money away for future education expenses. Therefore, any U.S. citizen or resident alien 18 years or older with a valid social security number of taxpayer identification number is eligible to open a 529 account, regardless of income level.

The source of the confusion may be that there are several other tax-advantaged savings accounts with income limits. For example, the Coverdell ESA has a graduated contribution limit based on modified adjusted gross income (MAGI). Individuals with a MAGI of $95,000 or less ($190,000 or less for married filing jointly) can make full contributions to the ESA, but they cannot participate at all if their income is greater than $ 110,000 (greater than $220,000 for married filing jointly). The good news is that families who cannot participate in Coverdell ESA plans due to income limits can still contribute to 529 plans.

Other 529 Plan Features

Because there are few restrictions that apply to opening a 529 plan, these plans are growing in popularity. Each state administers a state-specific version of the 529, and there is typically no requirement to be a resident of the state to participate. You can shop around for the plan that is right for you based on investment options, fee structure and fund management.

There are restrictions on how withdrawals must be used in order to maintain tax-advantaged status. While 529 savings can be used at eligible colleges, universities and vocational schools nationwide, all distributions must be applied to qualified education expenses.


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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.