529 tax benefits help your savings grow faster. Tax-free earnings, favorable
gift tax treatment and additional state tax benefits make 529 plans a great
option for most savers.
Breaking Down the Benefits
Enjoy tax–free earnings
Saving $200 per month for 18 years1,2
$65,211
Taxable Account
$79,536
529 Account
Earnings in a 529 account grow free from federal taxes when the money is used to pay for qualified higher education expenses. The earnings on most other savings or investment accounts, like mutual funds, are commonly subject to capital gains taxes upon withdrawal.
Contributions to a 529 plan do not have to be reported on your federal tax return each year. Additionally, any investment earnings are not reportable until the year they are withdrawn.
Favorable estate and gift tax treatment
Contributions to a 529 plan are treated as a completed gift to a student and are generally excludable from the account owner’s taxable estate. This means in 2025 contributions up to $19,000 a year, or $38,000 for married couples are gift tax free.
Special 529 rules allow a gift giver to make a lump sum contribution of up to five times the annual gift tax exclusion amount and spread it over five years for a tax free gift of up to $95,000 (joint taxpayers may fund up to $190,000) in 2025. Consult your tax advisor for more information about your specific tax situation and tax consequences.
Virginia residents: Virginia state income tax deduction
Invest529 account owners who are Virginia taxpayers may deduct contributions up to $4,000 per account per year with an unlimited carryforward to future tax years, subject to certain restrictions. Those age 70 and above may deduct the entire amount contributed to an Invest529 account in one year.
Virginia state income tax deduction examples3
Mr. Smith contributed $8,000 dollars to his account in the first year. He may deduct $4,000 from his Virginia state income tax return in the first year, and $4,000 on his Virginia state income tax return the next year.
Ms. Jones contributed $4,000 to her account for one child and $4,000 to a second account for another child in the first year. Ms. Jones may deduct the total $8,000 on her Virginia state income tax return.
Ms. Henry, who turned 70, contributed $10,000 to her 529 account. Since she is at least 70 years old, she may deduct the entire $10,000 contribution on her Virginia state income tax return.
Virginia residents: Virginia state income tax deduction
Invest529 account owners who are Virginia taxpayers may deduct contributions up to $4,000 per account per year with an unlimited carryforward to future tax years, subject to certain restrictions. Those age 70 and above may deduct the entire amount contributed to an Invest529 account in one year.
Virginia state income tax deduction examples3
Mr. Smith contributed $8,000 dollars to his account in the first year. He may deduct $4,000 from his Virginia state income tax return in the first year, and $4,000 on his Virginia state income tax return the next year.
Ms. Jones contributed $4,000 to her account for one child and $4,000 to a second account for another child in the first year. Ms. Jones may deduct the total $8,000 on her Virginia state income tax return.
Ms. Henry, who turned 70, contributed $10,000 to her 529 account. Since she is at least 70 years old, she may deduct the entire $10,000 contribution on her Virginia state income tax return.
Enjoy tax–free earnings
Saving $200 per month for 18 years1,2
$65,211
Taxable Account
$79,536
529 Account
Earnings in a 529 account grow free from federal taxes when the money is used to pay for qualified higher education expenses. The earnings on most other savings or investment accounts, like mutual funds, are commonly subject to capital gains taxes upon withdrawal.
Contributions to a 529 plan do not have to be reported on your federal tax return each year. Additionally, any investment earnings are not reportable until the year they are withdrawn.
Favorable estate and gift tax treatment
Contributions to a 529 plan are treated as a completed gift to a student and are generally excludable from the account owner’s taxable estate. This means in 2025 contributions up to $19,000 a year, or $38,000 for married couples are gift tax free.
Special 529 rules allow a gift giver to make a lump sum contribution of up to five times the annual gift tax exclusion amount and spread it over five years for a tax free gift of up to $95,000 (joint taxpayers may fund up to $190,000) in 2025. Consult your tax advisor for more information about your specific tax situation and tax consequences.
It’s not required to report withdrawals used for qualified higher education expenses on your federal tax return. Each year in which a withdrawal is made, an IRS Form 1099-Q (Qualified Tuition Program Payments) will be issued:
For withdrawals made payable to the student or a school, the 1099-Q is sent to the student.
For withdrawals made payable to the account owner, the 1099-Q is sent to the account owner.
For Roth IRA rollovers, the 1099-Q is sent to the Roth IRA account owner.
As of 2025, gifts of up to $19,000 per year, or up to $38,000 if married, to any one person are gift tax free.
Yes, but the same qualified higher education expense may not qualify for more than one tax benefit (e.g., tax-free withdrawals AND a federal tax credit).
Generally, withdrawals from a 529 plan are exempt from state or federal income tax when used for qualified higher education expenses.
Non-qualified withdrawals are taxable as ordinary income and, unless an exception applies, are subject to a federal penalty of 10 percent. Exceptions to the non-qualified withdrawal rules include the investment earnings of a withdrawal made due to the student’s death, disability or receipt of a scholarship.
Each state’s tax rules may differ in its treatment of income from a 529 plan, so it’s important to check with your state or consult a tax advisor regarding specific tax consequences taking withdrawals. Find information about tax benefits for education including examples, in IRS Publication 970, also available by calling the IRS toll-free at 1-800-829-1040.
Earnings on 529 plan grow federal and state tax–deferred and are excluded for income tax purposes when used for qualified higher education expenses. You pay no income tax as your contributions grow.
1 This chart is for illustrative purposes only and is not
intended to reflect actual performance of any specific investment. Assumes
interest rate of 6.25 percent compounded monthly. The value of your
Invest529 account will vary depending on market conditions and the
performance of the investment option you select, and it may be more or less
than the amount you deposited. You could lose money – including the
principal you invest – or not make money if you invest in one of these
programs. Past performance of investments is not an indicator of future
returns.
2 This example assumes a federal tax rate of 25 percent and a
Virginia tax rate of 5.75 percent.
3 The examples are provided for illustrative purposes only and
are not meant to provide you with tax advice. Your tax consequences depend
on your individual circumstances. You should consult your own tax advisor
regarding specific tax consequences of using the deductions in the manner
described above.
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