Mainstreet Financial Education · Tax Year 2026
The 529 plan does most of the work for most families, and the 2025 tax law made it more flexible. Here is how it compares with the other accounts, what Georgia adds, and how grandparents can help without hurting financial aid.
A 529 plan is a state-sponsored account where money grows tax-deferred and comes out tax-free for qualified education costs. You keep control of the account, you can change the beneficiary to another family member, and there is no income limit on who can contribute. For most families it is the first and often the only education account they need.
Georgia's plan is Path2College. Contributions are deductible on your Georgia return up to $4,000 per beneficiary per year on a single return and $8,000 on a joint return, and the account balance limit rose to $550,000 in 2026. You can use any state's plan, but only Georgia's gives you the Georgia deduction.
The 2025 tax law widened what a 529 can pay for. These changes are the reason the old worry about "what if they don't go to college" has mostly gone away.
Starting with 2026, up to $20,000 per student per year can go to elementary and secondary tuition. The list of K-12 expenses also grew to include curriculum materials, tutoring, standardized test and AP exam fees, and educational therapies for students with disabilities.
Tuition, exam fees, and books for licenses and certifications in recognized programs (a state workforce directory, a registered apprenticeship, or the VA's approved list) are now qualified expenses. An electrician's license or a nursing certification qualifies the same way a semester of college does.
If the account has been open 15 years, up to a lifetime $35,000 can roll into a Roth IRA in the beneficiary's name, within the annual Roth contribution limit each year ($7,500 in 2026). The money must have been in the plan at least five years. For a grandchild, this turns an unused college fund into the start of a retirement account.
Up to $10,000 per beneficiary can repay student loans, and the beneficiary can be changed to a sibling, cousin, or parent without tax. Money is rarely trapped in a 529 anymore.
| Account | What it does well | Where it falls short |
|---|---|---|
| Coverdell ESA | Tax-free growth like a 529, with any investment you choose, including individual stocks. | $2,000 a year per child, income limits for the contributor, and the money must be used by age 30. |
| Custodial account (UTMA) | No restriction on what the money is used for. Simple to open. | Becomes the child's property outright at 21 in Georgia. Earnings above a small amount are taxed at the parents' rate, and it counts heavily against financial aid. |
| Roth IRA for a working teen | Contributions can come out any time without tax. Growth is tax-free at retirement. A summer job earning $4,000 can fund $4,000. | Only earned income counts, and using it for college spends a retirement head start that is hard to replace. |
| Series I and EE savings bonds | Interest can be tax-free when used for tuition. | Income limits at redemption are low enough that many families lose the exclusion by the time college arrives. |
| Paying tuition directly | A grandparent who pays a school directly makes a gift that does not count against the annual exclusion at all. | Works only for tuition, not room, board, or books, and gives up the Georgia deduction. |
The American Opportunity Credit is worth up to $2,500 per student for each of the first four years of college, and $1,000 of it is refundable. It phases out between $80,000 and $90,000 of income for a single filer and $160,000 to $180,000 for a joint return. The Lifetime Learning Credit covers up to $2,000 for graduate school and part-time study.
The planning point is that you cannot claim a credit on expenses you paid with tax-free 529 money. Families who qualify for the credit should pay the first $4,000 of tuition each year from cash, claim the credit, and use the 529 for the rest. Families above the income limits can ignore this and use the 529 for everything.
A grandparent-owned 529 used to be a problem for financial aid, because withdrawals showed up as the student's income on the following year's FAFSA. That rule ended with the 2024-25 FAFSA. Withdrawals from a grandparent's 529 are no longer reported, and the account itself is never listed as a family asset. A grandparent can now own the account, keep control of it, and fund it with the five-year election, all without touching the student's aid.
A parent-owned 529 is still reported as a parent asset, but it is assessed at no more than 5.64% in the aid formula, which is mild compared with a custodial account in the student's name.
Front-loading $95,000 per grandchild (or $190,000 as a couple) moves money and its future growth out of your estate in one step, and the Georgia deduction still applies each year on the first $4,000 or $8,000. If you use the election, file a gift tax return for that year even though no tax is due. It is the paperwork that proves the election was made.
The best education account is the one that still works if plans change.
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