Five college savings myths set straight

  • For college savers, 529 plans offer various tax benefits, flexibility and control.
  • 529 account owners have a choice of state plans, regardless of residency or income level.
  • 529 account beneficiaries can use funds at any eligible educational institution and for a number of expenses in addition to tuition.

A 529 college savings plan is one of the smartest ways you can save for college, offering tax benefits, flexibility and control. Unfortunately, many college savers fail to maximize the 529 plan’s advantages because they misunderstand its features. Here are five common myths, debunked just in time for back-to-school season:

1. Myth: I can only use a 529 plan for in-state schools.

Truth: Funds in a 529 plan can be used at any eligible educational institution in the U.S., as well as certain foreign educational institutions. This includes public and private colleges and universities, community colleges, most vocational and technical schools and most graduate schools such as law, medical, business, etc.

2. Myth: I can only use 529 plan funds for tuition.

Truth: Money can be used for a number of college expenses, including room and board, books, fees and supplies. Calculate the projected cost of college for your loved one here.

3. Myth: I am restricted to my own state’s 529 plan.

Truth: There are no restrictions as to which state’s 529 plan you can invest in. Our side-by-side comparison tool can help you compare state plans.

4. Myth: I make too much money to open a 529 plan account.

Truth: Unlike some retirement savings vehicles, where tax advantages are phased out at higher incomes, 529 college savings plans are available to anyone regardless of income level. Bonus tip: Age is not a factor either -- the beneficiary of a 529 account can be a child or an adult.

5. Myth: A 529 plan could hurt my child’s chances for financial aid.

Truth: Impact of a 529 plan on financial aid is no more than a regular taxable investment account such as a bank account. Calculate your Expected Family Contribution amount for a reality check.


Please consider the investment objectives, risks, charges and expenses associated with 529 plan investments before investing. Contact your financial advisor or click here for a program brochure, which contains this and other important information about the plan. Read it carefully before investing. You should also consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program.

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