A 529 plan is a great way to start saving for your child's college education. While these plans offer many benefits, including the ability to set aside money that grows tax-deferred, several 529 college savings plan rules can feel confusing.
Here are six common 529 plan myths explained so you can move forward with more clarity as you save for your child's future.
Myth 1: Money in 529 Plans Covers Only College Costs
Tuition and fees are just one part of paying for college. You can use money from a 529 education savings plan to pay for tuition, but it can also cover other qualified expenses. These include laptops, textbooks, and room and board. It is important to avoid using 529 funds for nonqualified expenses such as gym fees or off-campus housing. Misusing the money may lead to taxes and penalties.
There are two types of 529 plans to keep in mind. A 529 education savings plan can be used for tuition and other qualified expenses. A prepaid 529 plan is different and can only be used for tuition. It allows you to pay for future college costs at today’s rates.
Myth 2: Families Must Contribute a Certain Amount
You do not need a large deposit to open a 529 account. Many plans have low minimums, sometimes $250 or less, according to the U.S. Securities and Exchange Commission.1
Starting small can still make a difference. The earlier you begin saving, the more time your money has to grow. Keep in mind that investments can go up or down. They do not guarantee growth or protect the original amount invested. Past performance does not predict future results.
Myth 3: Gift Tax Doesn't Factor Into Contributions
Large financial gifts may be subject to federal gift tax. Whether this applies to a 529 contribution depends on how much you give. In 2026, the annual gift tax limit is $19,000 per person.2 This limit also applies to 529 contributions. If you contribute more than $19,000 in a year, the extra amount may count toward gift taxes. This is important to consider if you plan to contribute a large amount at once or over time.
Myth 4: There Are No Contribution Limits to 529s
There is no annual limit on how much you can contribute to a 529 plan. However, there is a lifetime limit. The total allowed amount depends on the state.3 As of 2026, limits range from $235,000 in Georgia to $621,411 in New Hampshire.
Myth 5: 529 Account Ownership Doesn't Matter
If you open a 529 account for your child, you are the account owner and your child is the beneficiary. You control the account and decide how the money is invested and used.
If someone else opens an account for your child, they may later transfer ownership to you or your child. Ownership can affect taxes. In some states, the account owner may qualify for a tax deduction on contributions. This may not apply to others who contribute but do not own the account.
To understand the rules in your state, consider speaking with a tax professional.
Myth 6: Families Can Only Open a 529 in the State in Which They Reside
Each state offers its own 529 plans, but you are not limited to your home state. You can choose a plan from another state if it fits your needs. Some plans may have rules about residency for account owners or beneficiaries.1 Reviewing the details of each plan can help you make a more informed choice.
Before investing, investors should consider whether their state of residency offers similar qualified tuition plans that offer more beneficial state tax advantages or other benefits.
Final Thoughts
A college savings plan can help reduce education costs over time. Understanding how these plans work can make them easier to use and help you follow tax rules. Registered representatives can help you get started and guide your decisions. Not all registered representatives
offer every plan, so ask what options they can provide.
Sources
- Investor bulletin: 10 questions to consider before opening a 529 account. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-10.
- Frequently asked questions on gift taxes. https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes.
- 529 Contribution Limits 2025: Maximums by State, Gift Tax Exclusion, and More. https://www.savingforcollege.com/article/maximum-529-plan-contribution-limits-by-state.
- Instructions for Form 709 (2025). https://www.irs.gov/instructions/i709.
