What’s the Benefit of Using A 529 Plan to Help with Educational Expenses?

A 529 plan can be used to help support your loved ones in their future college education. There are three big benefits associated with using a 529 plan. The earnings or distributions are tax exempt, the contribution limits are much higher than comparable investment options, and anyone with any income level is allowed to invest. 

One of the biggest benefits is the higher contribution limits. One strong advantage of 529 plans is that the contribution limits are much higher than comparable accounts. As of mid-2022, all 529 plans have a maximum lifetime contribution limit of at least $235,000. Bear in mind that you may also apply for states set limits that are at $500,000 and above. 

Compare this with the possibility of making contributions to an individual retirement account with an annual maximum of $6,000, or $7,000 if over age 50. If a parent begins investing in an IRA once their child is born and continues making the maximum contribution every single year, the total parent contribution is just over $100,000. However, this is approximately half the amount that is allowed in states that have a low end of the 529 maximum.