Who Can Open a 529 Plan?

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Kathryn Flynn

By Kathryn Flynn

July 28, 2023

Just about anyone can open a 529 plan, including some corporations. These college savings plans have become a popular choice for families because they’re easy to use, they offer tax-free investment growth and, in some cases, you can claim a state tax deduction for your contributions. But the type of benefits a 529 plan offers will vary depending on who owns the account.

Here are six examples of people who would benefit from opening a 529 plan and how:


529 plans can only have one owner, and that person is often the Mom or Dad of a future student. Parents can open a 529 plan when their child is very young, or even before they are born, giving their account plenty of time to grow. A 529 plan is an investment account that works like a Roth IRA – you invest after-tax dollars that grow tax-free and are not taxed when you withdraw as long as the funds are spent toward higher education expenses. There are plenty of options available, and you can open almost any state’s 529 plan no matter where you live or where the child wants to attend college.

Parent-owned 529 plans also receive favorable financial aid treatment. Only a maximum of 5.64% of the value of parental assets are reported on the Free Application for Federal Student Aid (FAFSA), compared to 20% of the value of the student’s assets. And when the funds are withdrawn from the 529 plan to pay for college, the student will not have to report the amount as student income.


As long as they are at least 18 years old, a student can open a 529 plan and name himself the beneficiary. Adults seeking a career change or graduate school probably wouldn’t have much time to build their savings, but they may still be able to claim a state tax deduction for their 529 plan contributions.

34 states, including the District of Columbia, offer a state tax credit or deductions for contributions to a 529 plan. Most states will only offer benefits for residents who use their home states plan, but if you live in Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio or Pennsylvania you can claim a deduction for contributions to any state’s 529 plan.

You can generally claim a state tax benefit no matter how long the money is held in your 529 plan. So instead of paying tuition straight from a bank account, students can funnel the money though a 529 plan in order to claim the tax deduction.

RELATED: How much is your state’s tax benefit really worth?


Today’s grandparents want to help pay for college. In fact, according to a 2014 survey by Fidelity Investments, 72% of grandparents believe that it’s important to contribute to their grandchildren’s education.

With a 529 plan, grandparents can help fund a grandchild’s education and be sure that the money will be used for its intended purpose – college. Unlike UGMA/UTMA accounts, the owner of a 529 plan retains all legal rights to the funds throughout the life of the account, regardless of the age of the beneficiary.

529 plans can also be used as an estate-planning tool for grandparents, since the value of the account is removed from your taxable estate. What’s more, in 2023 contributions up to $17,000 per individual ($34,000 if married and filing jointly) will qualify for the annual gift tax exclusion, or you can elect to treat the contribution as if it were made over a five-year period. That means you would be able to make a $85,000 ($170,000 if married and filing jointly) contribution per grandchild in one year!

RELATED: Ways grandparents can help pay for college

Other friends and relatives

Aunts, uncles, godparents and just about anyone else can give the gift of education by opening a 529 plan for a child. As the account owner, you may qualify for state tax benefits as described above, and just like a grandparent you can be sure that your gift will be used toward paying for college.

In some cases, however, it may be easier to simply make a contribution to a 529 plan owned by the child or one of their parents. Many 529 plans offer online gifting making it easy to contribute directly to the child’s 529 account.

U.S. savings bond or UGMA/UTMA owners

Before the rise in popularity of 529 plans, many families saved for college with U.S. savings bonds or custodial accounts under UGMA/UTMA. Fortunately, both of these types of accounts offer ways to roll your funds into a 529 plan so that you can benefit from tax-free growth and favorable financial aid treatment when the funds are used to pay for college.

The Education Savings Bond Program allows Series EE and I bonds purchased after 1989 by someone age 24 or older to be redeemed tax-free when the proceeds are used to pay for higher education, including contributions to a 529 plan.

Parents of UGMA/UTMA owners may also want to consider converting their child’s account into a 529 plan, especially if they will be applying for federal financial aid. Assets held in UGMA/UTMA accounts are counted as student assets on the FAFSA and are assessed at 20%, which can increase the Student Aid Index (SAI, formerly referred to as Expected Family Contribution or EFC). 529 plan assets are considered parental assets, which are assessed at a maximum of 5.64% of their value. That means an UGMA/UTMA account valued at $10,000 would increase a student’s SAI by $2,000, but $10,000 in a 529 account would only increase SAI by up to $564. And remember, higher SAI means less financial aid for the student.

501(c)(3) charitable organizations

A charitable organization wouldn’t use a 529 plan for tax savings, since investment earnings are already exempt from income tax, but there are other reasons for a 501(c)(3) to consider a 529 plan, such as quality of investments, low management fees and due diligence provided by the sponsoring state. There is also no named beneficiary; so all funds held by the charity can be accumulated into a single account. Charitable organizations may use the 529 plan to fund scholarships, in which case the beneficiary will be named when the recipient is chosen and distributions are made.

A good place to start:

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