Or you can withdraw your money for any reason and pay taxes and a 10% penalty on the earnings (but not on the contributions).3 Account control However, you can use the money at a wide range of schools or transfer the account to a different beneficiary if you don't end up needing the money. These accounts are meant to be used for college. 529 plans are the only plans to offer these all-in-one investment options that are automatically rebalanced and managed for you over time. Age-based options-designed for higher education You can withdraw your money for any reason at any time, although you may pay taxes and a 10% penalty on the earnings portion of your withdrawal if you're not using the money for college. 529 plans offer a variety of investment portfolios to choose from, some of which are growth-oriented. You can contribute up to $75,000 ($150,000 if married and filing jointly) in a single year for each beneficiary without incurring gift taxes, as long as you don’t make any other financial gifts to that beneficiary for five years. The lifetime contribution limit per beneficiary is between $200,000 and $400,000, depending on the specific plan. However, if the account is owned by a student who is not claimed as a dependent or if the account is owned by someone else (grandparent, family friend, etc.), it could have a larger impact. Only about 5% of the money in these accounts is counted against federal financial aid, even if the student is also the account owner. Low impact on financial aid for higher education Earnings grow tax-deferred, and there's no federal tax on withdrawals used to pay for qualified education expenses. Depending on your state, contributions are often tax-deductible, and earnings grow tax-deferred.1 (Note that some states offer a tax credit instead of a tax deduction.) Withdrawals are tax-free when used for qualified higher-education expenses.2 Federal tax breaks A savings plan sponsored by a state but generally open to anyone who wants to save for college.
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