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RETIREMENT PLAN INVESTOR

Use your plan ID (available on your account statement) to determine which employer-sponsored retirement plan website to use:

IF YOUR PLAN ID BEGINS WITH IRK, BRK, 754, 1 OR 2

Visit americanfunds.com/retire

IF YOUR PLAN ID BEGINS WITH 34 OR 135

Visit myretirement.americanfunds.com

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What you need to know about 529 education savings plans

It's a fact that the cost of college tuition has continued to rise. Most states have 529 savings plans to help families like yours manage those costs. It's a good idea to educate yourself about these tax-advantaged accounts.

Key takeaways

  • Assets grow free from federal and, in many cases, state taxes if withdrawals are used to pay qualified education expenses. Tax-advantaged treatment applies to savings used for qualified education expenses. State tax treatment varies.
  • You (the account owner) control the account and how the money is spent.
  • Anyone can contribute to help you reach your educational goal.

Features and benefits of 529 savings plans

You don’t have to stay local

Most states have a 529 savings plan, including Washington, D.C. But just because you live in a certain state doesn’t mean you’re required to use its 529 savings plan. For instance, CollegeAmerica® is sponsored by the Commonwealth of Virginia, but you can invest in it no matter where you live, as long as it’s in the U.S.

Some states offer additional tax benefits, and each plan features different investment options. So it's a good idea to research which plan fits the needs of your family. 

Learn about qualified education expenses

Your child might be focusing on first steps or Boy Scouts right now rather than selecting a college major. One of the best things about a 529 savings plan is that it can be used to cover a lot when the time comes, including:

  • Tuition and related fees for college, trade and vocational schools, community colleges, theological seminaries, international schools, study-abroad programs that run through U.S.-eligible schools and more. Any accredited institution should be able to accept funds from a 529 savings plan. Find a list of accredited choices on Federal Student Aid.
  • College room and board.
  • Books and supplies, including textbooks, paper, pens or additional supplies required by specific classes (for example, a camera for a photography class).
  • Computers and supplies, including laptops, printers, educational software and internet services.
  • Certain apprenticeship program expenses.
  • Certain student loan expenses (up to a $10,000 lifetime maximum).
  • K-12 tuition (up to $10,000 a year per beneficiary on qualified expenses). But withdrawals for K-12 expenses may not be exempt from state tax in certain states.

Stay flexible

You can always transfer the account to another family member — as long as the new beneficiary is related to the original beneficiary. So, if your first child gets a scholarship and doesn't need all of the funds in her account, you can change the beneficiary to another child to be used for his education goals. Or you can use the money for yourself to get that next degree. You can even choose to hold on to it for a future grandchild.

Parents rule

There are two participants in a CollegeAmerica and other 529 savings plan: the account owner and the beneficiary. Usually the account owner is the parent or grandparent, and the beneficiary is a minor. The account owner maintains and controls the account, making all the decisions about taking withdrawals and changing beneficiaries, for instance, as well as selecting investments. So you, as the owner, have the final say about how and when the money will be used. Better yet, you can easily change the beneficiary and transfer the funds to an eligible family member if a situation arises.

Contributions, please!

Another great feature: gifting. Anyone can contribute to your child’s 529 savings plan. Most often, grandparents, aunts, uncles and friends enjoy the opportunity to gift a contribution that goes directly to education savings on birthdays and holidays. And when your child starts that first job — even washing cars or babysitting — he can make contributions, too. Every little bit will help.

Tax advantages

The earnings from your 529 savings plan aren’t subject to federal tax. Not when they’re in the account and not when you withdraw them either, as long as you use them for qualified education expenses. In addition, depending on your state’s tax regulations, you may be able to deduct some or all of your contributions. These tax advantages apply to qualified education expenses. If withdrawals are used for purposes other than qualified education expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax. States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K-12 expenses may not be exempt from state tax in certain states.

I’m in! What’s next?

Here are some key things to know about opening a 529 savings plan:
 
  • There are no income limits on a 529 savings plan. That means whether your income level goes up or down over the years, it doesn’t affect your eligibility for your 529 savings plan.
  • Any U.S. citizen or resident alien with a valid Social Security number or taxpayer identification number and who is at least 18 years old can open a 529 savings plan.
  • There are no age limits on beneficiaries. You can do it for a child, a peer, someone older than you, even yourself.


Talk with your financial professional to open an account. You can use our online locator to find a financial professional.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. Similar information is contained in the CollegeAmerica Program Description, which can be obtained from a financial professional and should be read carefully before investing. CollegeAmerica is distributed by American Funds Distributors, Inc. and sold through unaffiliated intermediaries.

Depending on your state of residence, there may be an in-state plan that provides state tax and other state benefits, such as financial aid, scholarship funds and protection from creditors, not available through CollegeAmerica. Before investing in any state's 529 plan, investors should consult a tax advisor. CollegeAmerica is a nationwide plan sponsored by Virginia529. 

This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

Use of this website is intended for U.S. residents only.

American Funds Distributors, Inc.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.