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Five myths about 529 education savings accounts

When it comes to saving for your child’s education, only one option allows parents to make tax-free withdrawals for qualified expenses and maintain control of the account: 529 education savings plan accounts. Although 529s have been around for nearly three decades, many parents could use a refresher to clear up misconceptions they may have about how these savings plans work. Here are some of the more common myths about these accounts, updated with the latest rules and limits.

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Myth 1

529 accounts can only be used to save for college.

529 account funds can be used at any accredited institution eligible for U.S. Department of Education financial aid programs, including public and private 4- and 2-year colleges, universities, graduate schools, and trade/vocational schools—nearly 6,200 institutions.1 In addition, account funds can be used for K through 12 tuition at qualified private, public, or religious elementary and secondary schools.

Here are some recent changes affecting how 529 account funds can be used.

  • Beginning January 1, 2026, the annual K–12 spending limit for qualified expenses increases from $10,000 to $20,000 per beneficiary.
  • As a result of the One Big Beautiful Bill Act enacted into law on July 4, 2025, funds in 529 accounts can now be used for K–12 books, curriculum materials, fees for standardized tests, dual-enrollment tuition for college-level courses taken in high school, educational therapies for students with disabilities, and tutoring costs.
  • 529s can also be used for qualified post-secondary credentialing and licensing programs (not just degrees) for skilled trades and professions.
  • Rollovers from 529 accounts to Achieving a Better Life Experience (ABLE) accounts for disabled beneficiaries are now permanently allowed; the provision allowing these transfers had previously been scheduled to expire December 31, 2025.

Myth 2

You’re better off sticking with your local state plan.

While you can open an account in a 529 plan offered by almost any state—regardless of where you live or where your child uses the account funds—you may want to consider your own state’s plan to see whether it offers state tax benefits that may be unavailable from an out-of-state plan.2 As of 2025, most states and the District of Columbia offer a full or partial state tax deduction or credit on contributions. Even if your state offers a tax benefit, it’s wise to compare plans, as they vary widely in:

  • Investment options
  • Account and management fees
  • Automatic contribution and rebalancing features
  • Maximum plan limits (see below for updated limits) 

Myth 3

High-income earners can’t contribute to a 529.

There are no income limitations for contributing to a 529 account, potentially making them attractive vehicles for gifting and estate planning. As of 2025, maximum aggregate state gifting limits range from $235,000 per beneficiary (Georgia) to over $620,000 (New Hampshire), with most states between $350,000 and $575,000. In addition, the IRS allows contributions of up to $19,000 per recipient ($38,000 for married couples filing jointly) without triggering federal gift taxes. It allows contributions of up to $95,000 ($190,000 for couples filing jointly) in a single year per beneficiary if those gifts are averaged out over five years of tax filings.3

Myth 4

Savings in a 529 account dramatically reduce financial aid eligibility.

529 accounts do affect financial aid, but not as much as many may believe, and they can work in concert with financial aid. A maximum of 5.64% of parent-owned 529 account assets are considered in determining a family’s Student Aid Index, which recently replaced a previous measure known as the Expected Family Contribution for the purpose of determining needs-based federal student aid eligibility. In contrast, student-owned assets are assessed at a higher rate, at 20%. 

Myth 5

529 accounts are difficult to open and maintain.

It’s simple to open and fund a 529 account, which can be opened with as little as $250. Most plans allow regular, automatic contributions from bank accounts, and family members, friends, and others can make gifts into a 529 account.

How a 529 account can fit into your overall financial plan

Before you open a 529 account, it may be a good idea to consult a financial professional to help decide which plan may be the best fit for your family. Your financial professional can also help you manage the investment options, determine how much to invest, and oversee the distribution phase when the time comes. 

1 For a complete list of Eligible Educational Institutions, visit the U.S. Department of Education’s Database of Accredited Postsecondary Institutions and Programs (DAPIP) at ope.ed.gov/dapip/#/home or the Federal Student Loan Program List at studentaid.gov/understand-aid/types/international. 2 Consult your financial, tax, or other professional to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances. 3 For 2025. The donor must elect that the gift be treated as having occurred over a five-year period in order for it to qualify for the federal gift tax exclusion. If additional gifts are made to the same beneficiary during this five-year period, a federal gift tax may apply. If the donor dies within this five-year period, a pro rata share will be included in the donor’s estate for federal estate tax purposes. State gift and estate tax laws may vary. State laws and treatment may vary.

The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.

It is your responsibility to select and monitor your investment options to meet your objectives. You should review your investment strategy at least annually. You may also want to consult your own independent investment or tax advisor or legal counsel.

State gift, estate tax, and tax laws and treatment may vary. Earnings on nonqualified distributions will be subject to income tax and a 10% federal penalty tax. Earnings on nonqualified distributions will be subject to income tax and a 10% federal penalty tax.

529 PLANS ARE NOT FDIC INSURED, MAY LOSE VALUE, AND ARE NOT BANK OR STATE GUARANTEED.

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Manulife John Hancock Investments

Manulife John Hancock Investments, 

Manulife John Hancock Investments

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