Open a 529 When Your Baby Is Young — Time Does the Work
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College feels impossibly far away when you have a baby in your arms. But a 529 is one of the few financial moves where starting early has a compounding advantage that's hard to overstate. The money you put in when your child is a baby has 18 years to grow tax-free. The money you put in at age 14 has four.
You don't need a lot to start. Most plans let you open with $25.
The one thing to know
A 529 is a tax-advantaged savings account specifically for education expenses. Contributions grow tax-free and withdrawals are tax-free when used for qualified expenses — tuition, room and board, books, and more. Many states also offer a tax deduction on contributions, which is essentially free money on top of the growth.
Check your state first
Before you open anything, look up whether your state offers a tax deduction on 529 contributions. Many do — and in some states the deduction applies to contributions to any 529 plan, not just your state's own plan.
Some states go further and offer startup grants — free money deposited into a 529 on your child's behalf just for being born there. Check your state's treasury or 529 program website to see what's available where you live.
If your state offers a deduction, your state's plan is usually the right first choice. If your state has no deduction or your state's plan has high fees and limited investment options, an out-of-state plan with low fees — Ohio's CollegeAdvantage and Nevada's Vanguard 529 are commonly cited — can make more sense.
How much to contribute
There's no magic number. Even $50/month started at birth adds up meaningfully over 18 years. A common benchmark is to aim to cover roughly a third of projected college costs — the assumption being that scholarships, work, and loans can cover the rest.
The more important decision is simply to start. A small amount invested early outperforms a larger amount invested late.
Two solid options
Backer is built specifically for 529s and makes gifting easy — family and friends can contribute directly for birthdays and holidays without you having to collect checks or Venmo requests. Simple to set up, works across state plans. Good choice if you want something straightforward and want to make it easy for grandparents to contribute.
Fidelity manages several state 529 plans and offers a range of low-cost index fund options. Better fit if you already use Fidelity or want more hands-on control over your investment choices.
One caveat: if your state requires you to use its own plan to qualify for the tax deduction, open that plan directly first. The deduction is usually worth more than any platform preference.
Either way, you're making a sound decision. The plan matters less than starting.
What if my child doesn't go to college?
This is a fair concern, and the rules around 529s have gotten more flexible over time.
Use it for other education expenses. 529 funds can be used for trade schools, community college, apprenticeships, and K–12 tuition (up to $10,000/year). The definition of "qualified expenses" is broader than most people realize.
Change the beneficiary. You can change the beneficiary of a 529 to an eligible family member at any time — a sibling, cousin, or even yourself — without triggering taxes or penalties. The money stays invested and keeps growing. If you're switching states or consolidating accounts, you can also roll funds from one 529 into another. A few rules apply: you can only do one 529-to-529 rollover per 12-month period for the same beneficiary, and the funds must be deposited into the new account within 60 days to keep the transfer tax-free.
Roll over to a Roth IRA. The SECURE 2.0 Act (effective 2024) allows unused 529 funds to be rolled over into a Roth IRA for the beneficiary — giving money saved for college a second life as a retirement head start. A few caveats to know:
- The account must have been open for at least 15 years
- The specific funds being rolled over must have been in the account for at least 5 years
- The lifetime rollover limit is $35,000
- Annual rollovers cannot exceed the standard Roth IRA contribution limit ($7,000 as of 2024)
- The beneficiary must have earned income to qualify
The money isn't locked away forever. Starting early still makes sense — you just have more options for where it ends up.
One thing to do today
Look up whether your state offers a 529 tax deduction — a quick search for "[your state] 529 tax deduction" will get you there. That answer tells you whether to use your state's plan or shop around. Then open an account with whatever you can spare.