Saving for the Future: 529 Plans

September 1, 2022

By Laird W. Green, CFP®

Opening a 529 plan is a fantastic way to save for education from public or private colleges and graduate schools (as well as private elementary through high school). The account is opened for an individual beneficiary of your choosing (child, grandchild, friend, or yourself), and you can make contributions to the account, which can be invested for growth. Plans are state-sponsored, and most states allow residents of other states to invest in their programs. The location of the college of the beneficiary’s choice does not have to be in the same state as the 529-state-sponsored plan.

The many benefits to using 529 plans to fund education include:

1. Tax-free growth

You contribute after-tax money to a 529 plan to be invested for growth. Later, when you withdraw the funds to pay for qualified education expenses (per the rules of the plan), you do not have to pay tax on the investment gain in the account. Only if you withdraw money for purposes other than education do you pay ordinary income tax on the growth in the account, along with an additional 10% penalty.

2. Possible state tax deductions

Some states give you an income tax deduction on your state income tax return for your contribution to the 529. The amount you can deduct may vary from state to state. South Carolina allows you to deduct the full amount of your contribution on your state income tax return: if you live in South Carolina and make a $10,000 contribution to the South Carolina Future Scholar 529 plan, you receive a $10,000 deduction on your South Carolina income tax return – a $700 tax savings.

3. Control over the account

You can name yourself as the account owner for any individual for which you want to open a 529 plan. As a result, you (not the beneficiary of the account), have control over when and how the money is spent.

4. Various investment options

You are not required to use the 529 plan in your state. When reviewing the investment options and fees of state plans, you may find you prefer one state’s plan over another’s. In that case you may wish to compare plans and fees. The website provides a tool which allows you to research and compare 529 plans:

5. High contribution limits and no income or age limits

Unlike other nontaxable accounts, 529 plans allow high contribution amounts and have no income or age limits. Maximum lifetime contribution limits vary from state to state— from $300,000 to $540,000. In South Carolina, the total of all accounts for any one individual cannot exceed $540,000 in overall contributions.

Contributions to 529 plans are considered gifts to that individual. You can make a gift of $16,000 per year ($32,000 for married couples) per beneficiary without having to file a federal gift tax return. These plans also allow the option to combine 5 years of annual gifting into one year. You could contribute $80,000 ($16,000 x 5) in one year ($160,000 for married couples). In this case you would file a gift tax return, but you would not trigger any federal gift taxes. If you contributed additional funds to the 529 plan during those 5 years, you would use some of your lifetime gift exclusion amount.

6. Simplified tax reporting

You do not have to report your 529 plan contributions on your federal income tax return.

Each year, the 529 plan reports all withdrawals from the account on Form 1099-Q to the Internal Revenue Service as well as the individual who received the withdrawal.

If you live in a state that allows you to deduct your 529 plan contributions, keep a record of the deposit to give to your CPA. Also, keep copies of all bills for expenses paid from the 529 plan in case the 529 plan account is ever audited.

7. Expanded use for pre-college costs

In 2017, as part of the Tax Cuts and Jobs Act, individuals can use 529 plan funds for private elementary and secondary educational (pre-kindergarten through 12th grade) costs up to $10,000 per individual per year.

As you utilize a 529 plan, consult your financial advisor or review the rules and regulations of the 529 plan to ensure you are using the funds in the plan for qualified educational expenses and are following the distribution timelines.

529 plans offer many advantages for providing a family member or friend the gift of education.


Laird W. Green, CFP® graduated from Furman University in 1992 with a BA in History. She received a Master of Arts in Public History and a Master of Library and Information Science from the University of South Carolina in 1998. Laird received the CFP® designation in 2002 and began working for Abacus Planning Group in 2016. Laird is one of seven Abacus shareholders.

Abacus is a financial advisory and investment counsel firm known for its passion in creating abundance for clients and family businesses through skillful listening and smart financial decision making. Managing over a $1.7 billion on behalf of its 250 plus families, Abacus consists of a team of multi-disciplinary experts who work collaboratively to serve its clients.