Advisor Insight

Busting the top myths about 529 college savings plans

The 411 on 529s

Pedestrians cross the street in front of the William Barton Rogers Building at the Massachusetts Institute of Technology (MIT) campus in Cambridge, Massachusetts.
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Americans need an education about 529 college savings plans. Nearly 3 out of every 4 polled don't know what a 529 plan is, investing firm Edward Jones found in its May 2016 529 Plan Awareness Survey. In addition, about half of all U.S. families sock away money for college in savings and checking accounts, according to a 2015 Sallie Mae survey. Even those "in the know" regarding the 529 plan as a useful vehicle for funding university-level education often suffer from some serious misgivings and misconceptions.

The folks at Nevada's state-sponsored SSGA Upromise 529 Plan cobbled together a list of common myths about products such as theirs. takes a look at a selection of the top myths they identified, along with some culled from other plan providers and college-funding websites, in the following slideshow.

Home sweet home?

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Myth: Assets in a 529 plan account can only be used at educational institutions in your home state or the state that manages the plan.

Reality: You can use 529 plan assets at any eligible school in the United States and abroad, including two- and four-year colleges, graduate schools and vocational/technical schools.

Source: Ascensus Broker Dealer Services

State of confusion?

Penn State University campus in University Park, Pennsylvania.
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Myth: You can only buy into 529 plans offered by your own state of residence.

Reality: Americans can set up 529 plans in almost any state in the union that offers one. However, it may make sense to invest in your home state plan if you'll get a state tax credit for doing so.


Books, beds and even burgers

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Myth: You can only use the assets in your 529 plan account to pay for tuition.

Reality: You can use 529 plan account assets for many higher-education expenses, including tuition, fees and certain room-and-board costs.

Source: Ascensus Broker Dealer Services

Family affair

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Myth: Only a parent can be an account owner.

Reality: Almost anyone — parents, grandparents, aunts, uncles and even friends — can open a 529 plan account for a beneficiary. You can also open one for your own education.

Source: Ascensus Broker Dealer Services

Plan B ... and C and D

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Myth: A prospective student can only be enrolled in one 529 plan at a time.

Reality: There are no limits on the number of 529 plans that can be opened for a beneficiary, but each plan will be subject to a maximum contribution on behalf of a specific beneficiary.

Source: Vanguard

Time will tell

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Myth: It's too late to start a 529 plan.

Reality: Even if the prospective student recipient of 529 plan funds is already in high school, setting up a plan can still be beneficial. Earnings grow federal tax–deferred, and when you withdraw the money for a qualified higher-education expense, it's federal tax–free. Assets not used for the original beneficiary can be rolled over to another family member (according to plan rules).

Source: Ascensus Broker Dealer Services

Never too old

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Myth: A 529 plan is only for children.

Reality: There's no maximum age limit for a 529 plan. Considering career retraining or an advanced degree? As long as your school is eligible, you can use 529 plan assets — even if you're not attending full-time.

Source: Ascensus Broker Dealer Services

Nothing wasted

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Myth: The money is lost if the original intended beneficiary doesn't go to college.

Reality: The 529 plan account owner controls the account and can change the beneficiary to another eligible family member (per Internal Revenue Service rules) with no tax penalty.

Source: Ascensus Broker Dealer Services

Less help?

Source: FAFSA

Myth: Having a 529 plan will disqualify the beneficiary for financial aid.

Reality: Having 529 plan assets at the ready will indeed affect the amount of financial aid a student may receive, but the impact will be less than you may fear. Money saved in a 529 plan is considered a parental, not student, asset, and withdrawn 529 funds — unlike, for example, money from Roth IRAs — do not count as student income on the FASFA when used to pay for college tuition. Eligibility will be reduced by no more than 5.64 percent of the amount saved in your 529 plan.

Sources:; Vanguard

Never too rich

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Myth: I make too much money to contribute to a 529 plan.

Reality: There are no income limits for 529 plans, unlike other educational savings accounts and some retirement accounts.