Saving for college with a 529 plan remains a popular choice among families with college-bound students.
Still, a 2024 survey found that 50% of respondents do not know what a 529 plan is and only 25% know that 529 plans can be used for purposes other than higher education.1
In fact, 529 plans can help families save for a range of education opportunities, outside of a traditional college education, including K-12 tuition, vocational training, apprenticeship programs, continuing education and more.
Vocational programs
The increasing demand for workers trained in vocational or technical trades has resulted in an increase in enrollment in vocational schools. Students in vocational programs enter fields such as cosmetology, plumbing, dental hygienists, radiologic technologists, medical assistant, construction managers, real estate agents, chefs, HVAC technicians, electricians and more. The National Student Clearinghouse reported enrollment in public two-year colleges with a high vocational program grew 14% in the fall of 2024.2
Students may use 529 funds for qualified vocational training at trade schools, community colleges, and certificate programs. Many trade school programs take less than two years to complete and are more affordable than four-year colleges. Students can also consider using 529 funds to attend community college for two years and then transferring to a traditional university or college. This may be an appealing option for those concerned about the costs of attending college.
Savings in 529 plans can be used to cover qualified expenses including tuition, fees, housing, meal plans, books, supplies, computer technology or equipment. Use the Federal Student Aid search tool to see if the program has a federal school code and contact the school.
Apprenticeships
Families may use also 529 funds to cover qualified expenses for apprenticeship programs, as students prepare for careers in range of industries such as financial services, education, energy, advanced manufacturing, construction, health care, technology and more. Qualified expenses include fees, books, supplies and equipment. To be eligible, apprenticeships must be registered by the Department of Labor (DOL) Those seeking a qualified program may visit the DOL’s website and use the “Find an Apprenticeship” tool.
Apprenticeships are paid work experiences combining academic education and hands-on work experience with a mentor. The programs are industry-driven, and students receive nationally recognized credentials.
K-12 education
529 plans can now be used to pay for K-12 tuition, up to $10,000 per year per beneficiary. This makes them a valuable tool for families with younger children.
Additional advantages of a 529 plan
- You pay no federal income taxes on account earnings while the account is invested. And you will pay no federal income taxes when the money is withdrawn to pay for qualified education expenses.
- You control the account, even when the child reaches legal age. As account owner, you retain control over withdrawals for the life of the account. In most cases, contributions to the account can be removed from your estate for tax purposes, yet you can retain control over the assets.
- It is important to note that not all states recognize certain expenses as qualified so there may be state tax implications when withdrawals are made.
Transfer of unused 529 funds to a Roth IRA
Up to $35,000 in 529 funds (over a lifetime) can be contributed to a Roth IRA in the name of the 529 beneficiary. The 529 must be open for at least 15 years, and 529 contributions (and related earnings) within the last five years are not eligible for transfer. Amounts may not exceed annual Roth IRA contribution limits (including other IRA contributions), and the beneficiary must have earned income. However, the income restrictions on making Roth IRA contributions do not apply to these contributions.
Some families find they have saved more than their children need for college. Students may graduate early or attend a less expensive program. In addition to the new option allowing a transfer to a Roth IRA, 529 plans offer several options if you don’t use all the money in the account.
- Transfer the money to another 529 account (money can be transferred to a sibling or family member in same generation as the original beneficiary).
- Change ownership to yourself to use for education at any accredited school.
- Take a non-qualified distribution in the name of the child so the tax rate is lower.
- Funds can be transferred to an ABLE account without tax or penalty. ABLE (Achieving a Better Life Experience) accounts allow parents to save for qualified expenses for children or adult beneficiaries with disabilities. Funds rolled over must total within the annual contribution limit for ABLE accounts
Seek advice
Much has changed with 529 plans since they were introduced more than 30 years ago. Over time, these tax-advantaged savings accounts have become more flexible. Families saving for college may consider meeting with a financial professional to set up a thoughtful strategy for college savings that is part of their overall financial plan.
For more information, speak with your financial professional.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Investors should carefully consider the 529 plan’s investment goals, risks, charges and expenses before investing. To obtain the Program Description, which contains this and other information, talk to your financial professional or call Franklin Distributors, LLC, the manager and underwriter for the 529 plan at (800) DIAL BEN/342-5236 or visit franklintempleton.com. You should read the Program Description carefully before investing and consider whether your, or the beneficiary’s, home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in its qualified tuition program.
Franklin Templeton’s 529 College Savings Plan is offered and administered by the New Jersey Higher Education Student Assistance Authority (HESAA); managed and distributed by Franklin Distributors, LLC, an affiliate of Franklin Resources, Inc., which operates as Franklin Templeton.
Investments in Franklin Templeton’s 529 College Savings Plan are not insured by the FDIC or any other government agency and are not deposits or other obligations of any depository institution. Investments are not guaranteed by the State of New Jersey, Franklin Templeton, or its affiliates and are subject to risks, including loss of principal amount invested. Investing in the plan does not guarantee admission to any particular primary, secondary school or college, or sufficient funds for primary, secondary school or college.
IMPORTANT LEGAL INFORMATION
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Endnotes
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1. Source: Edward Jones, 13th annual survey with Morning Consult. May 2024.
2. Source: National Student Clearinghouse Research Center, Current Term Enrollment Estimates: Fall 2024. As of January 23, 2025.
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