529 Plan Overview: How Parents Can Start Saving for College Today
Written by Lindsey Johns, CFP®
Wealth Advisor
Graduation season is a powerful reminder of how quickly the years pass. For many parents, it also raises an important question: How will we pay for our child’s education? The good news is that with the right strategy, you can begin building a tax-efficient college savings plan today. One of the most effective and widely used tools for education savings is a 529 plan.
What is a 529 Plan?
A 529 plan is a tax-advantaged investment account specifically designed to help families save for future education expenses. These plans allow your contributions to grow over time, with tax-free withdrawals when the funds are used for qualified education costs.
Tax Advantages
529 plans offer powerful tax benefits: contributions grow tax-deferred and withdrawals are tax-free when used for qualified education expenses.
- Tax-deferred growth: Your investments grow without being taxed annually
- Tax-free withdrawals: Distributions are tax-free when used for qualified education expenses
- Estate planning benefits: Contributions are removed from your taxable estate, while you retain control
Many states also offer valuable tax incentives for contributing to a 529 plan, including state income tax deductions or credits. For instance, in Illinois, individual filers may deduct up to $10,000 annually, while married couples filing jointly can deduct up to $20,000, provided the contributions are made to an Illinois-sponsored 529 plan.
2026 Contributions & Gifting Limits
For 2026, 529 plan contribution rules align with federal gift tax exclusions. You can give $19,000 per year per beneficiary (or $38,000 for married couples) without triggering gift tax reporting. Additionally, you can contribute up to $95,000 ($190,000 for couples) in a single year by front-loading five years of gifts (aka “Superfunding”). However, if you elect superfunding, you cannot make additional tax-free gifts to that beneficiary for five years.
Additionally, grandparents and other family members can contribute annually, making 529 plans a flexible multigenerational planning tool.
What Can 529 Plan Funds Be Used For?
529 plans are more versatile than most realize. Qualified expenses included:
- College tuition and fees
- Room and board
- Books and supplies
- Computer and required technology
In addition, 529 funds can also be used for:
- K–12 private school tuition
- Vocational and trade schools
- Graduate programs and certificate programs
What Happens If You Don’t Use All the Funds?
If your child doesn’t use all the funds, you can repurpose the funds by changing the beneficiary on the account, roll over up to $35,000 into a Roth IRA (subject to IRS rules), use funds to repay up to $10,000 in student loans, or simply keep the funds for any future educational endeavors.
How Much Should You Contribute to a 529 Plan?
Determining how much to contribute to a 529 plan depends on several key factors, including how many years you have until your child begins their education and whether you plan to use the funds for private K–12 schooling or allow the account to grow until college.
Using the projection tool MoneyGuidePro, it is estimated that if your child was born in April 2026, the total cost of college in 18 years could reach approximately $404,768 for the University of Illinois and $809,529 for Northwestern University. These projections assume an annual college cost inflation rate of 4% and include tuition, room and board, books and supplies, and any applicable out-of-state fees
Why Starting Early Matters
With college costs projected to reach such significant levels, planning early and strategically becomes essential to staying ahead of inflation and reducing future financial strain. Rather than approaching this as a one-time decision, building a disciplined, long-term investment plan can make a meaningful difference in how prepared you are when the time comes.
At Zuckerman Investment Group, we work with you to create a personalized strategy—helping you decide how much to contribute, how frequently to invest, and how to position your portfolio for long-term growth. Schedule today.
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