529 Plan Rules 2026: What the IRS Says About Education Savings

Disclaimer: This is general information, not tax advice. 529 plan tax treatment and qualified-expense rules can change and vary by state. Consult IRS Publication 970 and a tax professional before investing.

A 529 plan is a state-sponsored education savings plan. Earnings are generally federal-income-tax-free when used for qualified education expenses, and many states offer their own tax benefits. Rules differ by state plan, so read your plan's details.

What Is a Qualified Education Expense

Under federal rules, qualified expenses generally include tuition, fees, books, supplies, and equipment required for enrollment, plus certain room and board costs for students enrolled at least half-time. The IRS also allows 529 funds to be used for registered apprenticeships and, within annual limits, to repay student loans. Always confirm the current list in IRS guidance.

Basic Tax Treatment

• Earnings used for qualified expenses are generally not subject to federal income tax.
• Non-qualified withdrawals are typically taxed on the earnings and may incur an additional penalty.
• State tax treatment varies; some states deduct contributions or exempt earnings.

529 and Financial Aid

A 529 owned by a parent or student is generally treated as an asset on the FAFSA and can affect aid less harshly than some other assets, but treatment depends on the owner. Because rules are complex, check with your financial aid office.

Learn More

For the official rules, see the IRS at IRS.gov and Publication 970, and compare plan types in our 529 vs. Custodial Calculator.