Top 10 ways to maximize 529 plan benefits

Facebook icon Twitter icon Print icon Email icon
Kathryn Flynn

By Kathryn Flynn

May 8, 2024

Enrolling in a 529 plan is an important step toward saving for a child’s college education. But are you taking advantage of all that a 529 plan has to offer? Here are 10 things you can do to maximize the value of your 529 plan and get closer to meeting your college savings goals: 

1. Don’t wait to start saving 

529 plans offer tax-free compounding, meaning the longer you hold your money in the account, the more time it takes to grow. Each year you wait to save, you miss out on potential earnings and will have to contribute more each month to meet the same goal.

Parents with a 4-year-old child looking to cover 100% of the costs to attend a 4-year, in-state public college will have to contribute $200 more per month than if they had started saving when the child was a newborn. 

2. Set up automatic contributions 

Most plans allow account owners to link their 529 plan to a checking or savings account to schedule automatic contributions. Some plans also offer automatic payroll deductions. These “set it and forget it” strategies are an easy way to make regular monthly contributions and stay on top of your goal.

If something changes and you can’t continue making monthly deposits, change the setting in your account and make contributions when it’s convenient for you. 

3. Look for a plan with low fees 

Fees and expenses can eat away at your investment returns and shrink your college savings. Fortunately, many 529 plan program managers, including Vanguard and Fidelity, offer low-cost investment options for college savers. You can review the 529 Plan Fee Study to compare the costs of direct-sold plans. 

4. Reinvest any state income tax benefits 

Thirty-four states and the District of Columbia offer residents a tax deduction or credit for 529 plan contributions. In most cases, you have to use your home state’s plan to qualify, but seven states offer a benefit for contributions made to any 529 plan.

Annual tax savings can be reinvested and will compound over time to help grow your account balance. 

5. Use credit card rewards wisely 

Many credit cards offer cash-back rewards on purchases. You can use your rewards to contribute to a 529 plan; just remember to pay your balance in full each month to avoid interest charges.

If you use a Fidelity-managed 529 plan, you can link your account to a Fidelity Rewards Signature Visa Card to have your rewards automatically deposited. 

6. Ask for gifts 

Next time a friend or relative asks for gift suggestions for your child, let them know about your 529 plan. With tax-free compounding, even a modest gift can grow over time and help reduce the amount your child will have to borrow to pay for college.

Many gifting platforms are available that make it easy to solicit contributions to your child’s 529 plan via email and social media. 

7. Increase contributions when life changes 

Family budgets change over time, and so should your 529 plan contributions. When your child outgrows an expense such as diapers or daycare, you can start making larger deposits to their college fund. You can also make a lump sum contribution at any time.

Be sure to allocate some of any income tax refunds, inheritance money, work bonuses, or other windfalls to your 529 plan account. 

8. Hold stocks longer 

If you select an age-based 529 plan portfolio, your allocations will automatically shift from equities to fixed-income investments as your child approaches college. However, you could miss out on potential returns by shifting toward more conservative options too soon.

One alternative strategy is to keep your 529 plan heavily weighted toward equities at least five to 10 years before switching to an age-base portfolio. This can increase your annual return on investment without significantly increasing investment risk. 

9. Use a top-rated 529 plan 

There are many factors to consider when selecting a 529 plan. assigns a 5-Cap Rating to each plan based on historical investment performance, costs, features, reliability, and whether or not the plan offers additional benefits for residents.

Past performance is never an indicator of future results, but the 5-Cap Ratings can help families evaluate their options and make an informed decision when selecting a 529 plan. 

10. Do your research 

Like any investment account, it’s important to periodically check on your 529 plan and ensure you’re on track to meet your goal. You can also sign up for the College Savings Newsletter to stay on top of the latest trends and industry news affecting your 529 plan.

A good place to start:

See the best 529 plans, personalized for you