How to Pay for Baby’s Education with a 529 Plan
Education is expensive. A 529 is one way to plan for baby’s future.
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Holding a newborn baby for the first time may be priceless—but supporting a child for 18 years is not. In fact, the Brookings Institution puts the average cost of raising a child at over $300,000, and that only covers expenses through high school.
If you’re already thinking ahead to college or career training, you’re not alone. With tuition costs rising, Northwestern Mutual estimates that by 2037, state schools could cost nearly $225,000 and private colleges close to $500,000—more parents and caregivers are turning to 529 plans as a way to prepare. You’ve also likely heard about Trump Accounts and may be curious how a 529 plan compares.
Whether you’re a parent, grandparent, or family friend, here’s what to know about 529 plan details, including how to set one up for a child you love.
What’s a 529 Plan?
A 529 plan is a state-run, tax-advantaged investment account that parents use to help save money for college or other education down the road. Think of it as less of a traditional savings account and more of an investment account with serious tax perks.
529 funds can be used for:
College, graduate school, trade schools or vocational training
K–12 tuition (up to $10,000 per year, increasing to $20,000 in 2026)
Homeschooling expenses, tutoring, therapies, test prep
Student loan repayment (lifetime limit of $10,000)
Apprenticeships and continuing education
A 529 plan lets your money grow through investments, then be used tax-free for a wide range of education expenses, from college to K–12 and beyond. “It’s a smart, flexible way to set aside money for a child’s future and maintain control over how it’s used,” says Patricia Roberts, Chief Operating Officer at Gift of College, Inc., and author of Route 529: A Parent’s Guide to Saving for College and Career Training with 529 Plans. Bonus: Many states let you deduct contributions on your state tax return or offer tax credits.
How to Set Up a 529 Plan
The first thing to know is that anyone can open a 529 plan for a baby—it doesn’t have to be the parents. Accounts can be set up through a state-sponsored 529 plan (not just your own state), a financial institution or with the help of a financial advisor.
In most cases, the parent will be the account owner and that’s usually the best move. The account owner controls the funds and decides how they’re invested.
“For federal financial aid purposes, a 529 account owned by a parent is considered a parent asset (not a student asset) which results in more favorable financial aid treatment,” Roberts says. “Only a small percentage of the account’s value is factored into the aid calculation, and accounts owned by grandparents or others aren’t counted at all in the FAFSA formula.”
If a grandparent or other family member wants to contribute, they can do that without being the account owner—or they can open their own account if they prefer.
Here are the steps to establishing a 529 plan for your child:
1. Choose a plan
You can select any state’s plan, not just your own. When you’re deciding which one to go with, you’ll want to consider:
Tax incentives
Investment options
Fees and performance history
Gifting tools (some states make it easier for others to contribute)
Nerd Wallet’s 529 plans by state is a great place to explore state-run programs.
2. Enroll online
Once you've picked a plan, you'll need to open your account—typically through the state’s website or a financial institution like Fidelity, Vanguard or another provider that manages 529s.
Most plan websites offer enrollment kits to walk you through the process and give you a preview of what you’ll need.
You’ll usually need:
Names, addresses and birthdates for the account holder and beneficiary
Social Security Numbers or ITINs
Once your account is open, you can start making contributions (as little or as often as you like—monthly, yearly or whenever friends and family chip in). There’s no minimum to get started, which makes this an approachable option for a wide range of budgets.
Tax Benefits of a 529 Plan
529 plans come with tax perks—both federal and, in many cases, state-based. Here’s a breakdown of what you could save:
Tax-free growth. Your investment grows without being taxed at the federal level.
Tax-free withdrawals. No federal income tax on withdrawals used for qualified education expenses like tuition, housing and books.
New for 2026:
Up to $20,000 can go toward K–12 tuition
Or $10,000 (lifetime total) can be used to pay down student loans
State tax perks. More than 30 states offer deductions or credits for 529 contributions. The amount depends on where you live and how much you contribute.
👉 Looking for tax benefits of having a kid? We’ve got those too.
How Do I Contribute to a 529?
You can add money to a 529 plan through one-time or recurring contributions. Most plans make it easy to transfer funds directly from your bank, and some even allow payroll deductions through your employer.
👉 You don’t have to contribute a large amount to get started—many plans have low or no minimums. You can add a little bit each month or whenever it makes sense for your family.
Want to Give a Gift Toward a 529?
If you’re a friend or family member who wants to help grow a baby’s 529 account, there are a few easy ways to contribute:
Ugift: Parents can generate a unique code and share it with loved ones who want to send money securely to the 529. Contributions can start as low as $15.
Gift of College: These gift cards—available online and at retailers like CVS and Walmart—can be redeemed toward 529 plans. They make a great physical or digital gift.
💡 Good to know: You can gift up to $19,000 per person (or $38,000 as a couple) each year without triggering gift taxes.
How Do 529 Plans Compare to Trump Accounts?
Trump Accounts (the new federal savings program created under the Tax Relief for American Families and Workers Act of 2024) aren’t live yet—they’re set to officially launch July 5, 2026. They’re not a replacement for a 529, but rather another tool that can help families save.
As Roberts explains, “You may choose to have both a 529 plan account and Trump account as the two can be complementary and serve different purposes.”
Want the full scoop? Trump Accounts Explained: How to Open One & Get the $1,000 Federal Deposit breaks it all down—who’s eligible, how to open an account and how to claim your deposit.
What's the difference between 529 Plans & Trump Accounts?
| Feature | 529 Plan | Trump Account |
|---|---|---|
| When can I open one? | Right now—available in all states | When filing 2025 taxes or July 2026 |
| Does the government contribute? | Nope—whatever goes in, comes from you | Yep. $1,000 for eligible newborns and $250 for some older kids |
| What can I use the money for? | Only for education stuff: tuition, books, housing, even some student loans | Broader uses: school, a first home, starting a business and more |
| How much can I add each year? | It depends on your state (usually $235,000+ lifetime) | Up to $5,000/year from you + $2,500/year from your employer |
| Any tax perks? | Grows tax-free—but only if you use it for education | Grows tax-deferred (you'll pay taxes when you take it out) |
Frequently Asked Questions About 529 Plans
What Are The Different Types of 529 Plans?
There are two types of 529 plans, but most families use just one.
Prepaid tuition plans
Let you buy tuition credits now to use later at an in-state public college or university
You’re essentially locking in today’s tuition rates
These plans are less common and often only available to residents of certain states
Not all states offer them
“The prepaid plan lets you buy tuition credits at today’s prices and use them later at an in-state public college or university,” says Minna Black, founder of In the Black Wealth.
Savings plans (most common)
You contribute money over time and choose how it’s invested
Funds grow tax-free if used for qualified education expenses (like tuition, housing, and books)
Available in every state, with flexible investment options based on your risk comfort level
Can I set up a 529 for an unborn child?
Yes. Technically, you can only set up a 529 account for a living beneficiary with a Social Security Number. However, you can change the beneficiary at a later date. So you could open a 529 account with the expectant parent as both the account holder and beneficiary, and switch the beneficiary to the baby once their Social Security Number has been issued. It's a smart decision you can make as you prep for baby.
Can I set up a 529 for my grandchild?
Yes. You can either set up a custodial account for your grandchild that you manage or an individual account that one of your grandchild’s parents manage. “If you pursue the latter, you will not have control of how the funds are invested or whether or when they are withdrawn and for what purposes,” Roberts says.
Can I set up a 529 for my nephew or niece or a friend's baby?
Yes. Grandparents, aunts, uncles, godparents, family friends–anyone can set up a 529 plan for a child. However, in many cases it is more convenient to contribute to an already-existing account if the child has one.
How much should I contribute to a child’s 529?
The short answer is that you can contribute as much or as little as you want, and “Depending on what you intend your contributions to cover and when,” Roberts adds. There are a number of different strategies you may want to employ based on the age of the child. You can also calculate the projected cost of college and use an online 529 calculator to determine the amount.
But in the end, you should contribute whatever you can comfortably afford.
Do you need a 529 for each child?
Yes, since each 529 plan can only have one beneficiary. “It is important to open a separate account for each 529 plan beneficiary because each child (except in the case of multiples) will have a different date of birth and time horizon in which funds will be needed and thereby, different investment approaches,” Roberts explains.
She also notes it makes it easier for friends and family to gift contributions.
How do you manage a 529?
If you open a custodial account (where you own the account and designate a beneficiary), you’ll be the one managing it. That means choosing an investment strategy and deciding when to withdraw funds.
You may want to take more investment risks when your child is young, and shift to a more conservative approach as they get closer to college age.
And while 529 plans don’t require a lot of day-to-day upkeep, there is a little setup involved—like choosing how much you want to contribute and setting up recurring deposits (if that’s your plan). The good news? Once that’s done, things mostly run in the background.
What if your child doesn’t go to college?
While a 529 plan is considered one of the best ways to save for college, as of January 2024, a new policy has lifted the limitations on what the funds invested in a 529 plan may be used for, expanding options.
These include:
Changing the beneficiary to another family member (including siblings, cousins—even yourself)
Keeping the account open for future education
Rolling over up to $35,000 into a Roth IRA (tax-free) if the 529 account has been open for at least 15 years (this is new for 2026)
Are savings bonds still a thing? How do they compare to 529 plans?
Short answer: Yes, they’re still around, and they can be a decent gift option. But they’re not as popular as they used to be.
Tara Elwell Henning, founder of Superkin (an org that helps families with financial planning), says savings bonds were once “the go-to for college savings,” but they’re not quite as attractive these days.
Here’s why:
They’re a little trickier to buy and manage: You’ll need to go through a bank, credit union or TreasuryDirect, and you’re limited to $10,000 per year.
They might not grow as much: While they generally do better than regular savings accounts, they usually don’t offer the same long-term returns as 529 plans.
Many financial experts recommend contributing to a 529 instead. It’s specifically designed for education savings and comes with tax advantages and easier ways to grow your gift over time.
Expert Sources
Babylist uses high-quality subject matter experts to provide accurate and reliable information to our users. Sources for this story include:
Mina Black, founder of In the Black Wealth.
Tara Elwell Henning, founder of Superkin, an organization that hosts a popular workshop called “Financial Planning for Families and Caregivers.
Patricia Roberts, Chief Operating Officer at Gift of College, Inc., and author of Route 529: A Parent’s Guide to Saving for College and Career Training with 529 Plans.
