Tax Advantage of 529s

Income Tax

  • Tax-free earnings
  • Tax-free qualified distributions
  • Favorable federal estate and gift tax provisions
  • Virginia income tax deduction for account owner
In greater Detail:
  • Earnings not subject to federal tax 
  • Earnings not subject to state tax
  • Contributions are not deductible
  • Contribution reduces size of donor's estate and thus federal  estate tax
  • For grand parents reduces generation skipping tax
  • Contributions can not exceed the total of qualified education expenses of the beneficiary. 
  • If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $13,000 during the year. 


The purchases the 529 plan is the custodian and controls the funds until they are withdrawn.


A designated beneficiary is the student for whom the plan is intended to provide benefits. The beneficiary is generally not limited to attending schools in the state that sponsors their 529 plan. But to be sure, check with a plan before setting up an account.

 There are no tax consequences if you change the designated beneficiary to another member of the family. 

Also, any funds distributed from a 529 plan are not taxable if rolled over to another plan for the benefit of the same beneficiary or for the benefit of a member of the beneficiary’s family.