Our daughter is only 7 weeks old, but we are already thinking about college. 

Here’s why we are opening a 529 account:

What is a 529 account?

The 529 account is a tax-advantage investment account designed to help you pay for future education costs like college.

It allows you to invest, grow, and withdraw funds tax-free for qualified educational expenses.

Qualified education expenses include:

• K-12

• Books

• Tuition

• Room & Board

• Apprenticeships

• Student Loan Repayment

State Tax Benefits

If tax-free growth and withdrawals wasn’t enough, over 30 states offer a state income tax deduction or tax credit for 529 plan contributions. 

For example, we live in Oregon and can receive a state tax credit on contributions of up to $180, or $360 if filing jointly.

Contribution Limits

529 contribution limits are set by each state.  

State-sponsored 529 plans have maximum contribution limits that range from $235,000 (Georgia) to $597,000 (New Hampshire).

Gift Tax

However, 529 contributions may trigger gift tax consequences.

In 2025, the annual gift tax exclusion is $19,000 (individual) and $38,000 (married couples). 

Note - exceeding the annual gift tax limit doesn't mean you have to pay a gift tax. You’ll just have to submit IRS Form 709 to disclose the gift.

Superfunding

If you want to contribute more than the annual gift exclusion in any given year, you do what’s called “superfunding.” 

Superfunding allows you to contribute 5 years worth of contributions ($95,000 for individuals and $190,000 per married couple) at one time.  

The benefit is your contributions have longer to invest and grow.

Owners & Beneficiaries

There are three main people involved in a 529 account:

• Owner (the person who opens the account) 

• Beneficiary (the person who will use the funds)

• Successor (the new owner of the account if the original owner dies) 

It’s important to note you can change the designated beneficiary to another family member—for example, from your firstborn to your second child.

529 → Roth IRA

If you’re worried about overfunding your account, don’t be. As of 2024, you can now rollover up to $35,000 from a 529 account into a beneficiary’s Roth IRA.

However, there are some rules: 

• You have to have owned the 529 account for 15+ years 

• You can’t rollover contributions or earnings on those contributions from the past 5 years 

• Your rollover amount each year cannot exceed the annual Roth IRA contribution limit ($7,000)

Conclusion

Each state sponsors its own 529 plan and has its own rules, tax breaks, and contribution limits. 

You don’t necessarily have to pick your home state’s plan or even a plan in the state where your child goes to college. Check out Vanguard to see 529 tax benefits by state.

Do some research and figure out what works best for you.

Talk soon,

Darrell