Back to School Is a Good Time to Review Your 529 Plan
As students head back to school, families may be focused on new schedules, school supplies, and extracurricular activities. It is also a good time to review (or begin) an education savings plan.
A “Section 529 plan is a; tax-advantaged account designed to help families save for education expenses. Although these accounts are commonly called “college savings plans,” the funds can potentially be used for much more than tuition at a traditional four-year college.
How does a 529 plan work?
Contributions to a 529 plan are made with after-tax dollars and are not deductible on your federal income tax return. However, the money can grow without being subject to annual federal income tax, and withdrawals are generally federally tax-free when used for qualified education expenses.
Depending on the circumstances, qualified expenses may include:
- Tuition and required fees at eligible colleges, universities, graduate schools and vocational schools
- Books, supplies, computers and internet access
- Certain room-and-board expenses for students enrolled at least half-time
- Expenses associated with registered apprenticeship programs
- Up to $10,000 in lifetime student-loan repayments for the beneficiary, with an additional limit available for each eligible sibling
- Certain postsecondary credentialing expenses
- Qualified elementary and secondary school expenses, subject to annual limits
Beginning in 2026, the federal limit for qualified K–12 withdrawals increased from $10,000 to $20,000 per student per year. Eligible K–12 expenses were also expanded to include items such as curriculum materials, books, tutoring, standardized testing fees, dual-enrollment fees and certain educational therapies. State tax treatment may differ, so families should confirm their state’s rules before taking a withdrawal.
The account owner generally retains control of the 529 funds and may change the beneficiary if the original beneficiary does not need the entire balance. A change to another qualifying family member – including a sibling, parent, child, niece, nephew or first cousin – generally does not trigger federal income tax. However, certain changes involving a beneficiary in a younger generation may have gift- or generation-skipping-tax consequences, and special restrictions may apply to custodial accounts.
Wisconsin tax benefits
Wisconsin taxpayers may claim a state income tax deduction for qualifying contributions to Wisconsin’s “Edvest” or “Tomorrow’s Scholar” 529 plans.
For the 2026 tax year, the maximum deduction is:
- $5,280 per beneficiary for single filers and married couples filing jointly
- $2,640 per beneficiary for married taxpayers filing separately
Contributions exceeding the annual deduction limit may generally be carried forward and deducted in future years, subject to the annual limit. The deduction may be available to any Wisconsin taxpayer who makes the contribution, including a grandparent or other family member – not only the account owner.
Wisconsin taxpayers generally will have until April 15, 2027, to make a contribution that qualifies for the 2026 deduction.
Illinois tax benefits
Illinois taxpayers may deduct qualifying contributions made to “Bright Start,” “Bright Directions” and “College Illinois!” plans.
The annual Illinois deduction is limited to:
- $10,000 for an individual taxpayer
- $20,000 for married taxpayers filing jointly
These limits apply to the taxpayer’s combined contributions to all qualifying Illinois 529 accounts, rather than separately to each beneficiary or account.
Contributions must generally be made by December 31 to qualify for that tax year’s deduction. Illinois does not allow unused deductions to be carried forward to future years.
Start early, but remember that it is not too late!
The longer money remains invested, the more time it has to potentially grow. However, families do not need to contribute a large amount all at once. Regular monthly contributions, birthday gifts, and contributions from grandparents or other relatives can add up over time.
Before opening or contributing to a plan, consider the investment options, fees, state tax benefits and how the account may affect your broader financial goals. Because federal and state rules can differ, and education expenses must be coordinated with scholarships and education tax credits, it is important to keep detailed records and discuss significant withdrawals with PPG Partners or your tax advisor.
