529 Plan Rules by State (2026)

State income-tax treatment of 529 contributions (2026)

Federal rules that apply everywhere

Earnings inside a 529 grow federal-tax-free, and withdrawals for qualified higher-education expenses (tuition, room and board, required fees, books, and up to $10,000/year of K–12 tuition) are also federal-tax-free.

Non-qualified withdrawals trigger ordinary income tax plus a 10% penalty on the earnings portion only, your contributions always come out tax- and penalty-free.

Under SECURE 2.0, beneficiaries can roll over up to $35,000 lifetime from a 529 (open at least 15 years) to a Roth IRA in their own name, subject to the annual IRA contribution limit and a five-year wait after any new contribution.

How to choose between your home state's 529 and an out-of-state plan

If your state offers a deduction or credit only for in-state plans (most do), the tax break usually outweighs lower fees elsewhere, at least up to the deductible amount. Above that threshold, an out-of-state plan with lower expense ratios (Utah, Nevada, New York direct) often becomes the better choice.

Pennsylvania, Arizona, Kansas, Maine, Minnesota, Missouri, Montana, and Ohio give the deduction regardless of which state's plan you use, in those states, always pick the lowest-fee plan nationally.

Gift-tax superfunding

529 contributions count as gifts. The 2026 annual exclusion is $19,000 per donor per beneficiary, but a special rule lets you front-load five years of contributions in a single year ($95,000 single / $190,000 MFJ) without using lifetime gift-tax exemption, provided you file Form 709 and make no further gifts to that beneficiary for five years.

Frequently Asked Questions

Can grandparents open a 529 for a grandchild?

Yes, and starting with the 2024–25 FAFSA, grandparent-owned 529 distributions no longer count as student income, removing the historical financial-aid penalty.

What happens to leftover 529 funds if my child doesn't use them?

You can change the beneficiary to another family member (sibling, niece, nephew, yourself), use up to $10,000 lifetime to pay down student loans, roll up to $35,000 into the beneficiary's Roth IRA over time, or withdraw non-qualified and pay tax plus the 10% penalty on earnings.

Are 529 contribution limits federal or per-state?

Per-state. Each state sets a lifetime maximum (the highest balance the account can hold) ranging from $235,000 to $575,000. Once the cap is reached, no further contributions are allowed, but earnings can keep compounding above it.

Primary sources

• IRS Publication 970, Tax Benefits for Education , Internal Revenue Service. Verified May 10, 2026.
• Saving for College, State-by-state 529 tax benefits , Saving For College, LLC. Verified May 10, 2026.
• SECURE 2.0 Act, Section 126 (529-to-Roth rollover) , U.S. Congress. Verified May 10, 2026.