---
title: 6 Benefits of a 529 College Savings Plan
description: As an investment account that offers tax benefits to pay for qualified education expenses, the 529 college savings plan might be the right plan for you
image: https://blog.birchwoodfp.com/hubfs/AdobeStock_361694124_adobespark.jpeg
---
[](https://www.birchwoodfp.com/)
Phone: [952-885-9088](tel:19528859088)[](https://cta-redirect.hubspot.com/cta/redirect/3811900/47770b11-5936-41e0-b9cf-9b391581cd7a)
Phone: [952-885-9088](tel:19528859088)
[](https://cta-redirect.hubspot.com/cta/redirect/3811900/47770b11-5936-41e0-b9cf-9b391581cd7a)
# Financial Insights Blog
- Share
- [**](https://www.facebook.com/sharer/sharer.php?u=https://blog.birchwoodfp.com/benefits-of-529-plan)
- [**](https://twitter.com/intent/tweet?url=https://blog.birchwoodfp.com/benefits-of-529-plan)
- [**](https://plus.google.com/share?url=https://blog.birchwoodfp.com/benefits-of-529-plan)
- [**](https://www.linkedin.com/shareArticle?url=https://blog.birchwoodfp.com/benefits-of-529-plan)
- [**](https://pinterest.com/pin/create/button/?url=https://blog.birchwoodfp.com/benefits-of-529-plan&media=https://fs.hubspotusercontent00.net/hubfs/3811900/AdobeStock_361694124_adobespark.jpeg)
- [**](mailto:?body=https://blog.birchwoodfp.com/benefits-of-529-plan)
# 6 Benefits of a 529 Plan When Saving for College
[Damian Winther, CFP® CSRIC®](https://blog.birchwoodfp.com/author/damian-winther-cfp)
Oct 14, 2021 2:55:40 PM
College tuition costs [continue to rise](https://educationdata.org/average-cost-of-college) at an alarmingly steep pace, and many families are blown away by the sticker shock associated with a four-year degree program. As a financial advisor, I work with clients with young children ([and grandchildren](https://blog.birchwoodfp.com/rise-in-college-tuition)) to carefully evaluate the pros and cons of saving money into a 529 plan to pay for future college expenses. A 529 plan is an investment account that offers tax benefits to pay for qualified education expenses.
A 529 college savings plan offers several key advantages for today’s [younger generations](https://blog.birchwoodfp.com/paying-for-college) and families. Some of the key benefits include the following:
1. **Tax-Free Growth**
As long as distributions are used for qualified higher education expenses, the growth portion inside the 529 plan is eligible for tax-free distribution. However, if non-qualified distributions are taken, the growth portion of the 529 plan is subject to ordinary income tax, plus a 10 percent penalty.
2. **Tax-Free Return of Principal**
You can always take out what you’ve contributed to a 529 plan (i.e., basis or principal) without taxes or penalty. The ability to do this tax-free is a key benefit to individuals and families that may find themselves in financial hardship without access to other sources of liquidity. It’s also an important consideration for families that think scholarships are a likely scenario for their child(ren).
3. **Pay Off Student Loans**
Up to $10,000 can be distributed to pay off student loans – this is a relatively new 529 plan benefit, which gives account owners the ability to use $10,000 from within the 529 plan to pay down student debt.
4. **Funds Can Be Rolled Over or Consolidated****
**Money in a 529 plan can be rolled over and/or consolidated into a 529 plan for qualifying family members. Eligible family members include spouses, siblings, children, aunts, uncles, nieces, nephews, and first cousins. Rolling over funds to a family member may be a great source of flexibility, particularly if the original 529 plan beneficiary chooses not to go to college.
5. **Compounding Investment Returns**
The younger the 529 plan beneficiary, the more significant the potential impact of time and compound investment growth. Starting a 529 plan early is a fantastic planning opportunity since it creates more time for the account to grow on a tax-free basis.
6. **Tax Benefits Differ by State**
Some states offer income tax benefits (e.g., deductions and/or credits) if contributions are made to the owner’s state-sponsored 529 plan. Depending on your primary state of residence, this may or may not be an important reason for utilizing your in-state 529 plan.
Financial situations vary from person to person and family to family. Therefore, saving for short-, medium-, and long-term goals should be based on a series of decision factors and priorities. There is never a one-size-fits-all approach to achieving goals, and it’s for that reason that we work with clients to help them outline a roadmap and plan to help increase the likelihood they will be able to fund their goals.
[Read More: How Grandparents Can Help With the Rise In College Tuition>>](https://blog.birchwoodfp.com/rise-in-college-tuition)
At Birchwood Financial Partners, we work with our clients to help them feel empowered and knowledgeable about the financial decisions they are making every day. Please visit our website ([www.birchwoodfp.com](https://www.birchwoodfp.com/)) if you are interested in learning more about our Firm, our team, our processes and services, and the clients we currently serve.
[](https://cta-redirect.hubspot.com/cta/redirect/3811900/0e7cacca-a419-422d-b4cb-7b7a894cd03e)
*Investment Advisory services offered through Birchwood Financial Partners, Inc. an SEC Registered Investment Advisor.*
*All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. All financial products have an element of risk and may experience loss. Past performance does not indicate future returns. Opinions expressed herein are solely those of Birchwood Financial Partners, Inc., and our editorial staff. Material presented is believed to be from reliable sources; however we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual adviser or qualified professional before making any financial decisions. We are not affiliated with or endorsed by the Social Security Administration or any government agency. The inclusion of any link is not an endorsement of any products or services by Birchwood Financial Partners. All links have been provided only as a convenience.*
Topics: [Investment Management](https://blog.birchwoodfp.com/topic/investment-management), [Education Planning](https://blog.birchwoodfp.com/topic/education-planning), [Taxes](https://blog.birchwoodfp.com/topic/taxes), [Damian Winther](https://blog.birchwoodfp.com/topic/damian-winther)
*Investment Advisory services offered through Birchwood Financial Partners, Inc. an SEC Registered Investment Advisor.*
*All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Opinions expressed herein are solely those of Birchwood Financial Partners, Inc., and our editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual adviser or qualified professional before making any financial decisions. We are not affiliated with or endorsed by the Social Security Administration or any government agency. The inclusion of any link is not an endorsement of any products or services by Birchwood Financial Partners. All links have been provided only as a convenience.*
### Search Our Blog
### Posts by Tag
- [Investment Management (50)](https://blog.birchwoodfp.com/tag/investment-management)
- [Retirement (50)](https://blog.birchwoodfp.com/tag/retirement)
- [Suddenly Single (39)](https://blog.birchwoodfp.com/tag/suddenly-single)
- [Cash Flow and Budgeting (36)](https://blog.birchwoodfp.com/tag/cash-flow-and-budgeting)
- [Estate & Legacy Planning (35)](https://blog.birchwoodfp.com/tag/estate-legacy-planning)
- [Market Insight (35)](https://blog.birchwoodfp.com/tag/market-insight)
- [Bridget Handke (29)](https://blog.birchwoodfp.com/tag/bridget-handke)
- [Dana Brewer (25)](https://blog.birchwoodfp.com/tag/dana-brewer)
- [Taxes (25)](https://blog.birchwoodfp.com/tag/taxes)
- [Damian Winther (20)](https://blog.birchwoodfp.com/tag/damian-winther)
- [Rachel Infante (18)](https://blog.birchwoodfp.com/tag/rachel-infante)
- [Socially Responsible Investing (SRI) (17)](https://blog.birchwoodfp.com/tag/socially-responsible-investing-sri)
- [Steve Dixon (14)](https://blog.birchwoodfp.com/tag/steve-dixon)
- [Charitable Giving (13)](https://blog.birchwoodfp.com/tag/charitable-giving)
- [Kimmie Andrews (12)](https://blog.birchwoodfp.com/tag/kimmie-andrews)
- [Education Planning (11)](https://blog.birchwoodfp.com/tag/education-planning)
- [Kay Kramer (5)](https://blog.birchwoodfp.com/tag/kay-kramer)
- [Cybersecurity (3)](https://blog.birchwoodfp.com/tag/cybersecurity)
- [Brayden Kelly (1)](https://blog.birchwoodfp.com/tag/brayden-kelly)
- [Growing Wealth (1)](https://blog.birchwoodfp.com/tag/growing-wealth)
- [Kayla Berceau (1)](https://blog.birchwoodfp.com/tag/kayla-berceau)
[See all](https://blog.birchwoodfp.com/benefits-of-529-plan#)
[](https://www.birchwoodfp.com/)
[Home](https://www.birchwoodfp.com)
[WHO WE ARE](https://www.birchwoodfp.com/about)
[WHO WE SERVE](https://www.birchwoodfp.com/who-we-serve)
[WHAT WE PROVIDE](https://www.birchwoodfp.com/solutions)
[DOWNLOADABLE GUIDES](https://info.birchwoodfp.com/resources)
[blog](https://blog.birchwoodfp.com)
[Contact Us ](https://www.birchwoodfp.com/contact-us)
[Form CRS](https://info.birchwoodfp.com/form-crs)
[Forms ADV](https://info.birchwoodfp.com/adv)
[PRIVACY POLICY](https://info.birchwoodfp.com/privacy-policy)
[5601 Green Valley Dr., Ste 600](https://maps.app.goo.gl/EbBNRPP4sFfkeYZd8)
[Bloomington, MN 55437](https://maps.app.goo.gl/EbBNRPP4sFfkeYZd8)
Phone: [952-885-9088](tel:19528859088)
Email: [info@birchwoodfp.com](mailto:info@birchwoodfp.com)
All written content on this site is for information purposes only. Opinions expressed herein are solely those of Birchwood Financial Partners, Inc. and our editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual adviser prior to implementation. Advisory services are offered by Birchwood Financial Partners, Inc., an SEC Registered Investment Advisor. Birchwood Financial Partners, Inc. is not affiliated with or endorsed by the Social Security Administration or any government agency, and is not engaged in the practice of law. The presence of this web site shall in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the States of AZ, CA, FL, IA, IL, MN, NC, NY, TX, WI or where otherwise legally permitted. All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions.
Images and photographs are included for the sole purpose of visually enhancing the website. None of them are photographs of current or former Clients. They should not be construed as an endorsement or testimonial from any of the persons in the photograph. The inclusion of any link is not an endorsement of any products or services by Birchwood Financial Partners, Inc. All links have been provided only as a convenience.
© 2026 Birchwood Financial Partners. All Rights Reserved.
[Disclaimer ](https://www.birchwoodfp.com/disclaimer)[Legal, privacy, copyright and trademark information](https://www.birchwoodfp.com/legal-privacy-copyright-and-trademark-information)
```json
{
"@context" : "https://schema.org",
"@type" : "BlogPosting",
"author" : {
"@type" : "Person",
"name" : "Damian Winther, CFP® CSRIC®",
"url" : "https://blog.birchwoodfp.com/author/damian-winther-cfp"
},
"dateModified" : "2021-10-27T19:20:42.864Z",
"datePublished" : "2021-10-14T19:55:40.000Z",
"headline" : "6 Benefits of a 529 College Savings Plan",
"image" : [ "https://blog.birchwoodfp.com/hubfs/AdobeStock_361694124_adobespark.jpeg" ],
"mainEntityOfPage" : {
"@id" : "https://blog.birchwoodfp.com/benefits-of-529-plan",
"@type" : "WebPage"
},
"publisher" : {
"@type" : "Organization",
"logo" : {
"@type" : "ImageObject",
"url" : "https://blog.birchwoodfp.com/hubfs/new%20logo%201%20b.jpg"
},
"name" : "Birchwood Financial Partners"
}
}
```