Maybe you have heard that 529 plans can only be used for tuition, or that they could hurt your child’s chances of receiving financial aid. Here, we break down some of the most common myths, so you can make an informed decision for your family’s future.
This article is sponsored by DC College Savings Plan.
Myths vs. facts—clearing up common misconceptions
Myth: A 529 plan can only be used for schools in your home state.
Fact: Savings can be used at any eligible school in the country and abroad, not just in the District of Columbia.1 This includes K-12 tuition expenses,2 two- and four-year colleges, graduate schools, vocational schools, and registered apprenticeships.3
Myth: You can only use a 529 plan to pay for college tuition.
Fact: Your DC College Savings Plan can be used to cover a wide range of qualified educational expenses,4 including tuition, fees, computers, certain room and board costs, and even loan repayments.5
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Myth: 529 savings could impact financial aid.
Fact: As long as the 529 is a parental asset, only about 5% of the account balance is reported on the FAFSA when granting financial aid.6
Myth: It costs a lot to open and maintain a 529 plan.
Fact: You can open a DC College Savings Plan account with just $25 a month with recurring contributions or a one-time contribution of $25. To help you stay consistent, you also have the option to set up payroll direct deposit with a $15 minimum per pay period through participating employers.7
Myth: You have to make a lot of investment decisions.
Fact: With the DC College Savings Plan, you can be as hands-on or hands-off as you choose. Select a Year of Enrollment Portfolio that automatically adjusts as your child gets closer to enrollment, design your own investment lineup with an Individual Portfolio, or invest in a Principal Protected Portfolio to provide a guaranty of principal.
Myth: If your child does not go to college, you lose your money.
Fact: The 529 plan account owner controls the account. If plans change, you can transfer the account’s balance to an immediate family member or yourself, or you can withdraw the money and pay taxes on the earnings portion along with a 10% penalty.4
Myth: It is too late to open an account.
Fact: Even if your child is already in high school, you can still benefit from a 529 plan. Potential earnings grow federal and state tax-deferred, and withdrawals for qualified expenses are free of federal tax.4 District taxpayers can also receive a tax deduction of up to $8,000 for married couples or domestic partners filing jointly (up to $4,000 if filing individually, with separate accounts) when they contribute to their DC College Savings Plan account.
Get started today
The truth is: The DC College Savings Plan helps families across the District save for education in a convenient, flexible, and tax-advantaged way. Enroll online today or learn more.
1An eligible institution is one that can participate in federal financial aid programs.
2Up to $10,000 per year, per student at any K-12 public, private, or religious school.
3Expenses required for participation in a program registered and certified with the Secretary of Labor under the National Apprenticeship Act.
4Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes and recapture of DC tax deductions. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.
5Principal or interest on any qualified education loan (as defined in section 221(d) of the Internal Revenue Code) of the designated beneficiary or a sibling of the designated beneficiary, up to a lifetime limit of $10,000 per individual. Note, if you make an education loan repayment from your Account, Section 221(e) (1) of the Internal Revenue Code provides that you may not also take a federal income tax deduction for any interest included in that education loan repayment.
6Savingforcollege.com Editorial Team, “How Do 529 Plans Affect Financial Aid?” Savingforcollege.com, last modified January 23, 2025.
7A plan of periodic investment does not assure a profit or protect against a loss in declining markets.
Before you invest, consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state’s qualified tuition program.
For more information about The DC College Savings Plan ("the Plan"), call 800-987-4859, or visit www.dccollegesavings.com to obtain a Program Disclosure Booklet, which includes investment objectives, risks, charges, expenses, and other important information; read and consider it carefully before investing.
The Plan is administered by the District of Columbia Office of the Chief Financial Officer, Office of Finance and Treasury. Ascensus College Savings Recordkeeping Services, LLC, the Program Manager, and its affiliates, have overall responsibility for the day-to-day operations including recordkeeping and administrative services. Ascensus Investment Advisors, LLC serves as the Investment Manager.
The Plan's Portfolios invest in: (i) exchange-traded funds,(ii) mutual funds and (iii) a funding agreement. Investments in The Plan are municipal securities that will vary with market conditions. Investments are not guaranteed or insured by the Government of the District of Columbia, the District of Columbia College Savings Program Trust, the District of Columbia Chief Financial Officer, the District of Columbia Treasurer, the Trustee for the District of Columbia College Savings Program Trust or any co-fiduciary or instrumentality thereof, the Federal Deposit Insurance Corporation or any instrumentality thereof.
INVESTMENTS ARE NOT FDIC INSURED, MAY LOSE VALUE AND ARE NOT BANK GUARANTEED.
