Everything You Need To Know About 529 Plans in New York

Written By Jonathan Thomas

Most parents I talk to think about paying for college the same way: with a knot in their stomach. The cost keeps climbing, the timeline feels short, and the question underneath it all is usually some version of "Where do I even start?"

My answer is almost always the same. Start with a 529 plan. It's the account built for this exact job, it comes with real tax advantages, and it's more flexible now than most people realize. Here's what I want families to understand about how these accounts work in 2026.

What a 529 Plan Actually Is

A 529 is a tax-advantaged account for education. Your money grows without being taxed along the way, and when you withdraw it for qualified education costs, those withdrawals come out tax-free.

Qualified expenses go well beyond tuition. You can use 529 funds for:

  • Tuition and mandatory fees

  • Room and board (for students enrolled at least half-time)

  • Books and supplies

  • A computer, software, and internet access used for school

Getting Started in New York

If you live in New York, the state's plan lives at nysaves.org. Opening an account is genuinely simple:

  1. Open the account online.

  2. Link your checking account.

  3. Set a contribution amount. Fifty or a hundred dollars a month is a real start, and you can change it whenever you want.

  4. Choose an investment option. I usually point families toward a target-enrollment portfolio, which shifts to a more conservative mix automatically as your child gets closer to college, so you're not managing it by hand.

New York also gives you a state tax deduction for your contributions, up to $5,000 for an individual or $10,000 for a married couple filing jointly, each year.

How Flexible These Accounts Have Become

A few years ago, a 529 was a college-only account. That's no longer the case. Federal law now lets you use 529 money for apprenticeship programs registered with the Department of Labor, and to repay student loans, with a $10,000 lifetime cap per beneficiary.

The change I get the most questions about is the Roth IRA rollover. Starting in 2024, you can roll unused 529 money into a Roth IRA for the beneficiary, up to a $35,000 lifetime limit. There are conditions worth knowing: the 529 has to have been open at least 15 years, the money you move has to have been in the account at least five years, the Roth has to belong to the beneficiary, and that beneficiary needs earned income. The rollover also counts against their annual Roth contribution limit, so it moves over across several years rather than all at once.

The point is this: if your child ends up not needing all the money, it doesn't just sit there stranded. It can go toward their retirement instead.

A Word of Caution for New Yorkers on K-12

You may have read that 529 plans can now cover K-12 private school tuition, and at the federal level that's true. For 2026 the federal K-12 tuition limit even doubled, from $10,000 to $20,000 a year.

Here's the catch that matters if you live here. New York has not adopted that rule. The state treats a withdrawal for K-12 tuition as a nonqualified withdrawal, which means it can claw back the state tax deductions you've already taken. So before you use New York 529 money for private grade-school tuition, talk it through with someone, because the federal benefit and the New York treatment don't line up. This is exactly the kind of detail I'd rather you hear before you make the withdrawal than after.

What College Actually Costs

According to the College Board's 2025-26 figures, tuition, fees, room, and board average about $25,850 a year at a four-year public in-state university, and closer to $60,900 at a private nonprofit. Add books and personal expenses and the all-in numbers run higher still.

Now push that forward. A newborn today won't set foot on campus for eighteen years, and college costs have historically outpaced general inflation. Whatever the sticker price looks like now, plan on it being meaningfully larger by the time your kids get there. That's the case for starting early. The families who feel calm about college aren't the ones who found a magic investment, they're the ones who started putting money away when their kids were small and let time do the heavy lifting.

The best time to open a 529 was the day your child was born. The second-best time is today.

529s and Your Estate Plan

There's a piece of this that has nothing to do with your own kids. 529 contributions are treated as completed gifts, which means they leave your taxable estate while you keep control of the account. In 2026 you can front-load five years of the annual gift tax exclusion at once, which works out to $95,000 per beneficiary as an individual, or $190,000 as a married couple, without eating into your lifetime exemption. Grandparents use this to help fund an education and move money out of their estate at the same time.

What This Means for Financial Aid

How you hold college savings affects aid, so this is worth getting right. A 529 owned by a parent counts as a parent asset on the FAFSA, which is assessed at a maximum of 5.64% of the balance. That's a light touch compared with money held in the child's name.

Grandparent-owned 529s used to create a problem, because withdrawals counted as student income and could reduce aid the following year. That's over. Starting with the 2024-25 FAFSA and continuing into 2026-27, distributions from a grandparent-owned 529 no longer count against the student at all. For a lot of families, that makes a grandparent-owned account one of the cleaner ways to help.

Where to Begin

Saving for college doesn't have to feel impossible. A 529 gives you tax-free growth for education, real flexibility if plans change, and a place in your broader financial picture. The hardest part is starting, and the amount matters less than the habit. Small monthly contributions add up, and your future self, and your kids, will be glad you didn't wait.

If you're trying to figure out how a 529 fits alongside your retirement savings and everything else you're funding, that's the conversation I have with families all the time. I'd be glad to walk through it with you.

Jonathan Thomas, CFP®, CCFC, is the founder of JQL Wealth LLC, a fee-only fiduciary financial planning firm in Pittsford, New York. This article is for educational purposes only and is not personalized investment, tax, or legal advice. Tax rules change and depend on your situation, so please consult a qualified professional before acting.

Sources

Jonathan Thomas
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