How the 529 growth calculator works
What the 529 actually gives you
Three advantages: tax-free growth for qualified education (the big one — no annual tax drag), state deductions on contributions in 30+ states, and control (the account is yours; the beneficiary can change). The cost is usage restriction — non-qualified withdrawals pay tax plus a 10% penalty on earnings, which keeps the money honest.
The glide path is a feature
Age-based portfolios shift from stocks to bonds as enrollment nears — the same logic as retirement target-date funds. The practical implication: the expected return input should decline over time (8% early, 4–5% in the final 3 years), and money needed for the freshman year should not be in equities the summer before.
The Roth-IRA overflow valve
Since 2024, up to $35,000 of leftover 529 funds (account 15+ years old) can roll to the beneficiary's Roth IRA, subject to annual limits — which converts the "overfund penalty" fear into a retirement head start. Combined with beneficiary changes (siblings), overfunding is now a manageable risk; underfunding is still loans.