What is a 529 plan like in California? (2024)

How Our 529 Plan Works

Tax-advantaged growth potential

ScholarShare 529 provides tax benefits for California families saving for college. Any earnings are tax-deferred, and withdrawals are tax-free when used for qualified higher education expenses. These tax advantages can add up and give your beneficiary an even bigger head start!

Limitations apply.²

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With your ScholarShare 529, you’re never locked in. You’ll always have access to several options for this money:

• Your funds can be used to pay for a variety of eligible education expenses, including at any accredited college, university, apprenticeships, community college or postgraduate program in the United States—and even some schools abroad.¹
• Your 529 can be used for student loan repayment up to a $10,000 lifetime limit per individual.¹
• Up to $10,000 annually can be used toward K-12 tuition (per student).²
• You can transfer the funds to another eligible beneficiary, such as another child, a grandchild, yourself or a friend.
• If you just want the money back, you can withdraw the funds at any time. If funds are withdrawn for a purpose other than qualified higher education expenses, the earnings portion of the withdrawal is subject to federal and state taxes plus a 10% additional federal tax on earnings (known as the “Additional Tax”). Non-qualified withdrawals may also be subject to an additional 2.5% California tax on earnings. See the Plan Description for more information and exceptions.
• Or you can always wait because the funds never expire, and often the choice to go to school is a delayed decision. So if your child changes their mind down the road, your savings will still be available.

• Effective January 1, 2024, 529 funds may be rolled over to a Roth IRA in the name of the beneficiary of the 529 plan.

  State tax treatment of a rollover from a 529 plan into a Roth IRA is determined by the state where you file state income tax. There are conditions that must be met including the 529 plan must have been in existence for at least 15 years.

  You should talk to a qualified professional about how tax provisions affect your circ*mstances.

Footnotes

1. ¹Withdrawals for registered apprenticeship programs and student loans can be withdrawn free from federal and California income tax. If you are not a California taxpayer, these withdrawals may include recapture of tax deduction, state income tax as well as penalties. You should talk to a qualified professional about how tax provisions affect your circ*mstances. Read about eligible education expenses.

   Apprenticeship programs must be registered and certified with the Secretary of Labor under the National Apprenticeship Act.↩

2. ²Withdrawals for tuition expenses at a public, private or religious elementary, middle, or high school can be withdrawn free from federal tax. For California taxpayers these withdrawals are subject to state income tax and an additional 2.5% California tax. You should talk to a qualified professional about how tax provisions affect your circ*mstances.↩

No. Your ScholarShare 529 funds can be used at any accredited university in the country—and even some abroad. This includes public and private colleges and universities, apprenticeships, community colleges, graduate schools and professional schools.¹ Up to $10,000 annually can be used toward K-12 tuition (per student).² In addition, your 529 can be used for student loan repayment up to a $10,000 lifetime limit per individual.¹ Review a list of qualifying expenses and the state tax treatment of withdrawals for these expenses in the Plan Description.

Footnotes

1. ¹Withdrawals for registered apprenticeship programs and student loans can be withdrawn free from federal and California income tax. If you are not a California taxpayer, these withdrawals may include recapture of tax deduction, state income tax as well as penalties. You should talk to a qualified professional about how tax provisions affect your circ*mstances. Read about eligible education expenses. Apprenticeship programs must be registered and certified with the Secretary of Labor under the National Apprenticeship Act.↩
2. ²Withdrawals for tuition expenses at a public, private or religious elementary, middle, or high school can be withdrawn free from federal tax. For California taxpayers these withdrawals are subject to state income tax and an additional 2.5% California tax. You should talk to a qualified professional about how tax provisions affect your circ*mstances.↩

Assets in a parent-owned 529 account have less of an impact on financial aid than some other savings methods. Expected Family Contribution (EFC) calculations for financial aid generally factor parent assets outside of retirement savings at approximately 5%, whereas student assets are generally factored in at 20% or more. Therefore, a parent-owned 529 account may have less of an impact on financial aid eligibility than assets owned by the student.¹

Footnotes

1. ¹The treatment of investments in a 529 savings plan varies by school. Assets are typically treated as the account holder’s and not the student’s. (Student assets are generally assessed at 20%, whereas parental assets are generally assessed at 5.6%.) Any investments, including those in 529 accounts, may affect the student’s eligibility to get financial aid based on need. You should check with the schools you are considering regarding this issue.↩

ScholarShare 529 offers a variety of smart investment options to fit your life situation, risk tolerance and savings goals. These portfolios vary in investment strategy and degree of risk, allowing you to select a portfolio or combination of portfolios that fit your needs and savings goals.

To compare our ScholarShare 529 investment portfolios, visit our Investment Comparison page. For more information on the investment objectives, risks, charges and expenses, read the Plan Description.