Put Your 529 Savings on Autopilot This Year
It’s a fact of life that we like to instill in our children: Good habits lead to positive results, eating well and exercising regularly contribute to better health, studying well can lead to better grades, and going to bed early will leave you better prepared for the next day. But do they know that the good habits they establish in life can also benefit their loved ones? That’s a lesson they’ll learn by example. And there’s no better example than seeing how regular contributions you made to a 529 plan over time led to their financial well-being by paying for their education expenses and lessening their debt.
Hack Your Habits with a “Nudge”
One way to get into the habit of regularly contributing to a loved one’s 529 plan is simple psychology. A dietary example would be putting fruit at eye level as an option rather than banning junk food. This concept is explored in the best-selling book “Nudge: Improving Decisions About Health, Wealth, and Happiness” by legal scholar Cass Sunstein and Richard Thaler, winner of the Nobel Prize in Economics.
So, how can you put nudge theory into practice to help you get into the habit of regularly making contributions to a 529 plan? The answer is simple, and you’re probably already doing it in other areas of your financial life. One example would be those automatic 401K contributions deducted from your paycheck. Doesn’t that increase your participation in savings? If you have transaction alerts on your credit card or banking app, those are nudges, too. You can apply those simple habit-forming actions to 529 savings by setting up recurring automatic contributions into your account with The Education Plan®.
How to Put Your Contributions on Autopilot
As you discovered when you opened your 529 account, you’ve got a lot of options for how you can make contributions. Two simple options that will help you put your contributions on autopilot are:
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Payroll Contribution – if your employer offers it, you can contribute to your 529 Plan directly each time you get your paycheck, similar to your 401K. If your employer doesn’t offer it, mention it to your HR team. It’s easy to set up and can help all employees save more.
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Automatic Investment Plan (AIP) – schedule recurring contributions from your bank account. This option is excellent for retirees or grandparents who are saving for grandchildren, as well as anyone who doesn’t have an automatic payroll contribution option at work. And getting it set up is simple! Simply log in to your account to get started.
Benefits of Automating Your Contributions
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Dollar Cost Averaging – As the adage goes, “slow and steady wins the race.” The same concept can be applied to investments. Markets can be volatile, which often means that shares in your 529 plan could be available at lower prices, and when you purchase those shares at a discount, your autopilot 529 contribution can buy more shares than it otherwise would. This is known as dollar cost averaging, and while it’s no guarantee for success, it helps reduce the risk of losses due to market ups and downs.
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Compounding - Saving money is more than just setting aside funds. It's about putting those funds to work for you over time. One of the best benefits of automating your 529 contributions is the potential for steady growth through compound interest. When the earnings from your plan are added to your principal, it forms a more extensive base on which future earnings can accumulate. The longer your money is invested, the more compounding works for you.
Start Small and Increase Your Autopilot Contributions Any Time
You can increase your regular contributions over time when you set up recurring automatic contributions, allowing you to ease into the plan and save more when it’s convenient. This “nudge” also takes the “willpower factor” out of the equation and allows your plan to benefit from dollar cost averaging and compounding interest.
Remember, it’s never too early or too late to develop good savings habits. Log in to your account with The Education Plan to set up automatic contributions today.
Frequently Asked Questions
A 529 plan is a tax-advantaged investment account that is designed to grow savings for future education expenses for a specified beneficiary. 529 plans offer unique benefits and features that make them an appealing strategy for education related saving.
A 529 plan can be used for “qualified educational expenses.” For federal tax purposes, qualified educational expenses include:
- Tuition and fees at accredited higher education institutions
- Books
- Supplies and equipment
- Room and board for beneficiaries attending on at least a half-time basis.
- Computer technology, equipment, and internet access
- Up to $10,000 a year for K-12 tuition and expenses (Limit increase to $20,000 in 2026)
- Expenses for educational special needs services
- Transfers to an ABLE account for the beneficiary (transfer subject to annual limit)
- Apprenticeship expenses
- Up to $10,000 for student loan repayment
- Credentialing expenses and certification programs
- Roth IRA rollover for the beneficiary
If you're not sure if an expense is considered "qualified," we recommend consulting with a tax professional or advisor. Unqualified expenses will be treated like ordinary income: state and federal taxes will apply, with a 10% federal penalty for withdrawals from your 529 plan used to pay for them.
New Mexico residents can deduct contributions to The Education Plan from their state taxable income each year. This includes contributions made to an account that you are not the account owner of.
You cannot deduct contributions from federal income taxes.
Any person at least 18 years old with a valid Social Security Number (SSN) or Tax Identification Number (TIN) can open a 529 account. The account holder chooses the investment options, designates a beneficiary, and requests the distribution of funds.
The cost of college continues to rise, including tuition, housing, food and supplies, so it’s important to begin saving as soon as possible. You can learn more about how much a typical college education costs on our Cost of College page. It’s never too early or too late to start.
The Education Plan offers a variety of investment options to fit you and your family’s needs, risk tolerance and goals. You can see all of the available investment portfolios on the investments page.
Yes, you can use up to $20,000* a year to cover tuition and expenses for K-12 education.
Qualified K-12 expenses include:
- Tuition (public, private, and religious)
- Curriculum materials, books (including digital/online) and instructional materials
- Tutoring and instructional classes**
- Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to college or university admission
- Dual enrollment program fees
Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies
*Starting in tax year 2026. The annual limit is $10,000 in tax year 2025 and permitted for tuition only.
**Tuition for tutoring or educational classes outside of the home, including at a tutoring facility, but only if the tutor or instructor is not related to the student and—
(i) is licensed as a teacher in any State,
(ii) has taught at an eligible educational institution,
or (iii) is a subject matter expert in the relevant subject.
You can open an account with The Education Plan online or by mailing in the enrollment form. In order to open an account, you will need the following information:
- Your social security number or TIN
- Your address
- Your bank account information (in order to fund the account)
- The beneficiary’s social security number or TIN
- The beneficiary’s birthday
-The beneficiary’s address
