What You Need to Know About College Savings Plans
As a parent, saving for your child's college education can be a daunting task. With the rising cost of tuition, it's important to start planning early and explore all your options.
When it comes to college savings plans, 529 accounts are helpful tools to maximize savings and grow funds over time. According to the College Savings Foundation (CSF), 529 plans are the top choice for saving for education. A growing number of families have turned to 529 plans to prepare for the mounting costs of education. In 2021, 529 accounts had over $480 billion in assets and there are nearly 16 million 529 account holders across the nation, according to College Savings Plans Network (CSPN).
A 529 plan is a tax-advantaged education savings plan designed specifically for education expenses. It's named after Section 529 of the Internal Revenue Code, which was created in 1996 to encourage families to save for college. The Education Plan® is New Mexico’s official 529 education savings plan. Individuals from any state and US territory can open an account with The Education Plan.
One of the main benefits of a 529 education savings plan is that the funds in the account can grow tax-free. This means that any earnings on your investments in a 529 account are not subject to federal income tax, and in some cases, state income tax when funds are used to pay for qualified education expenses. Additionally, many states offer tax deductions or credits for contributions made to a 529 plan. In New Mexico, 100 percent of contributions can be deducted from your state income tax when funds are used for qualified expenses.
Another advantage of a 529 plan is flexibility. You likely don’t know what educational path your child or grandchild will take. With a 529 plan, that’s okay. The funds can be used for a variety of qualified educational expenses, including tuition, fees, books, room and board, and computer equipment. You can also use the funds for any eligible education institution, including trade schools, community colleges, and universities and even some institutions abroad.
When it comes to college savings, contributions can really add up. With a 529 education savings plan you can effectively crowd source college savings. Anyone can open or contribute to a plan, including grandparents, aunts, uncles, and friends. The Education Plan makes this even easier with Ugift. The program allows you to create a simple code that you can share with friends and family. They use the code to send a gift directly into the 529 account. There are even gift certificates they can print out to make the gift feel special.
Overall, a 529 education savings plan with The Education Plan can be a valuable tool for saving for your child's future education. It offers tax benefits, flexibility, and the potential for tax-free growth. With careful planning and savings, you can help provide your child with the education they need to succeed.
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
