It’s a competitive job market, and HR leaders and benefits professionals are constantly seeking innovative ways to attract and retain top talent while improving employee financial wellness. One powerful yet underused strategy within corporate wellness programs is offering 529 savings plans as a voluntary benefit. These plans require minimal effort to implement but can have a substantial impact, fostering loyalty, easing financial pressure, and enhancing workplace satisfaction.

According to Commonwealth research, 96% of low- and moderate-income parents expressed interest in opening a 529 plan if their employer offered one, highlighting significant untapped potential. Colorado’s CollegeInvest 529 program is a leading option, providing unique advantages for both employers and employees.

What Is a 529 Savings Plan?

A 529 plan is a state-sponsored, tax-advantaged savings account designed to help families save for future education expenses, including college, trade schools, vocational training, and apprenticeships.

Key Benefits:

• Tax-Free Growth: In Colorado, earnings grow tax-free at both the federal and state levels when used for qualified expenses. Plus, Colorado offers a state income tax deduction on contributions, making saving even more rewarding.
• Flexibility: Open to anyone—parents, grandparents, relatives, or individuals saving for their own education.
• Control: The account owner maintains control of the funds, choosing investments and beneficiaries.
• Investment Options: CollegeInvest’s 529 savings plans offer a variety of investment choices, including age-based portfolios that automatically adjust over time, as well as stable value, blended, and individual strategies to suit different risk profiles.

529 plans have become increasingly popular due to rising tuition costs, making them a critical part of long-term financial wellness strategies.

Why Offer 529 Plans as a Voluntary Employee Benefit?

Enhancing Employee Financial Wellness

Financial stress is one of the top contributors to employee anxiety and lost productivity. 57% of employees cite financial stress as their primary workplace concern, while 56% spend over three hours each week distracted by financial issues (PwC, Fiducient Advisors). That amounts to close to four full workweeks of lost productivity per year for each financially stressed employee, highlighting the very real business impact.

Offering 529 plans directly through payroll direct deposit helps employees build targeted savings for education costs, easing future burdens and providing peace of mind. Unlike general savings accounts, 529 plans offer tax advantages and a clear, future-focused goal, making employees more likely to stick to their savings plan and feel supported by their employer in doing so.

Boosting Employee Retention and Loyalty

Financially stressed employees are more likely to seek new opportunities. PwC research shows they are twice as likely to be job hunting (36% vs. 18%). Additionally, 73% of these employees would be more attracted to companies demonstrating genuine care for their financial well-being.

Additionally, 96% of low- to middle-income parents expressed interest in opening a 529 plan if offered by their employers. Offering a 529 benefit signals that your organization is invested in employees’ long-term goals, not just their day-to-day productivity. This builds goodwill, strengthens employer brand reputation, and can help retain top talent, especially among younger workers planning for families.

Why a 529 Employee Benefit Is a Low-Cost, High-Impact Option

Implementing a 529 employee benefit is simple and cost-effective for organizations of any size. Employers can support their teams in two ways:

1. Make it available as a voluntary benefit for employees
   • No employer contributions are required.
   • Employers can make saving easier by offering payroll direct deposit as a simple option for employees.
2. Encourage engagement by offering employer contributions
   • Even a small one-time contribution ($50–$100) can dramatically increase participation, especially when combined with CollegeInvest’s $50 Kickstart bonus for employees who attend an info session.
   • Employers who contribute can receive a 20% Colorado state tax credit (up to $500 per employee annually).

For small-to-mid-size employers, adding a 529 benefit can be a differentiator in attracting talent compared to larger competitors with more extensive packages.

Colorado’s CollegeInvest 529 – Unique Advantages

State Income Tax Deduction for Employees

For the 2026 tax year, Colorado taxpayers can deduct up to $26,200 per taxpayer, per beneficiary for single filers, or $39,200 per beneficiary for joint filers. These caps are adjusted annually for inflation, ensuring the deduction remains one of the most generous in the country for families saving for education.

Tax Credits for Employer Contributions

Employers receive a 20% tax credit (up to $500 per employee annually) on contributions of up to $1,500. This credit is available through at least 2032, allowing employers to plan ahead for long-term benefit offerings.

CollegeInvest Incentives

• $121 First Step gift for any Colorado child born or adopted on or after January 1, 2020 (eligibility currently includes children up to 6 years old).
• Matching contributions up to $1,500 over 3 years for eligible new participants who open an account by 12/31/26.
• $50 Kickstart bonus for employees who attend an educational session, helping to drive awareness and engagement.

Easy Implementation – Low Effort, Big Impact

Seamless Payroll Direct Deposit Option

Employers are not required to manage contributions, but they can make saving even easier by offering payroll direct deposit as an option. Employees manage their own accounts, choosing investment options and beneficiaries, and they can start or stop contributions at any time. There are no enrollment windows or waiting periods.

Minimal HR Burden via CollegeInvest Support

CollegeInvest provides turnkey support:

• Education sessions (in-person or virtual Lunch & Learns)
• Marketing and benefit fair materials
• Enrollment and ongoing assistance for employees

After initial setup, administrative involvement for HR teams is minimal, freeing time for other strategic priorities.

Flexible Contribution Options for Employers

529 plans can be offered by businesses of any size, even those with fewer than 10 employees. Plans are available for full-time, part-time, and remote employees, accommodating diverse workforce needs.

Because 529 plans are not subject to ERISA rules, employers have flexibility in structuring contributions and incentives. You can:

• Award contributions to new parents, as a meaningful “New Baby Gift.”
• Provide matching contributions when employees set up their own regular deposits.
• Offer tiered contributions without needing uniform matching across the workforce.
• Tailor offerings to align with your organizational culture and employee needs.

FAQs – Top Questions for HR Leaders

Do employees want it?

Yes, 96% of low- and moderate-income parents expressed interest.

Is it only for parents?

No. 529 plans aren’t just for parents — they can also be opened and contributed to by adult learners, grandparents, aunts, and uncles, as well as anyone saving for a loved one’s education. Grandparents often see 529 contributions as a meaningful way to invest in their grandchildren’s education.

How do 529 plans fit into our voluntary benefits offering?

529 plans are a powerful, future-focused addition to your voluntary benefits lineup. They complement retirement plans, student loan assistance, and other wellness programs, offering unique value to employees planning for education expenses.

Can small businesses offer it?

Yes! Over 900 Colorado small business employers already participate with no group minimum.

What about out-of-state employees?

Employers with staff outside Colorado can still offer a 529 benefit. Those employees may choose to open a CollegeInvest account or participate in their own state’s 529 plan to take advantage of local tax benefits. While non-Colorado residents won’t qualify for the Colorado state tax deduction, CollegeInvest provides tools and resources to help compare state plans and guide employees to the best fit.

What results should we expect?

Results you can expect to see are improved retention, lower stress levels, increased employee satisfaction, and a stronger recruiting advantage.

Conclusion – A Smart, Future-Focused 529 Employee Benefit for Employers

Adding a 529 employee benefit through Colorado’s CollegeInvest program is a forward-thinking, cost-effective way to strengthen employee financial wellness and retention. With tax deductions, employer tax credits, participation incentives, and a simple implementation process, it’s a high-value benefit that aligns with long-term workforce goals.

By offering this voluntary 529 employee benefit, you demonstrate your commitment to helping employees and their families achieve future education goals while boosting your competitive advantage in attracting and retaining talent.

Ready to take the next step?
Contact CollegeInvest at employers@collegeinvest.org to explore how to bring a 529 employee benefit to your team. You can also schedule a presentation to learn more and get your questions answered.

Planning for a child’s education is one of the most impactful financial moves a family can make, and Colorado families have a powerful tool at their disposal: the 529 college savings plan. Not only do 529 plans offer a smart way to grow education savings tax-free, but Colorado residents can also enjoy a valuable state income tax deduction for their contributions. If you’re wondering how to make the most of these benefits, especially the Colorado 529 tax deduction, this guide will walk you through everything you need to know.

Let’s dive into how these plans work, the tax perks available, and how to avoid common missteps while optimizing your contributions and withdrawals.

What Is a 529 Plan?

A 529 plan is a tax-advantaged savings account to help families save for future education expenses. Named after Section 529 of the Internal Revenue Code, these plans offer federal and often state income tax benefits for savers.

529 plans come in two types: college savings plans and prepaid tuition plans. Colorado exclusively offers the former through its CollegeInvest program. These accounts grow tax-deferred, and qualified withdrawals, for things like tuition, fees, and even room and board, are tax-free at both the state and federal levels.

Overview of 529 College Savings Plans

529 college savings plans operate similarly to investment accounts and allow families to invest in a range of options, much like a retirement account. Contributions grow over time and can be withdrawn tax-free when used for eligible education expenses. These accounts are flexible, tax-advantaged, and are one of the most popular tools for long-term education planning.

Federal vs. State 529 Plans

While federal tax law governs the overall structure of 529 plans, like the tax-free growth and qualified withdrawals, each state manages its own plan with its own rules, incentives, and programs. Colorado’s CollegeInvest program is particularly generous with state income tax deductions for contributions.

Understanding the distinction between federal standards and Colorado-specific provisions will help you better navigate the system and maximize your savings benefits. For example, Colorado residents who contribute to any of the four CollegeInvest 529 savings plans may deduct 100% of those contributions from their Colorado taxable income, making it one of the most tax-friendly states for education savers.

Colorado’s 529 Tax Deduction Explained

Colorado offers one of the most generous tax advantages for 529 contributions. Understanding who qualifies and how much you can deduct can help you better plan your contributions and tax strategies each year.

Eligibility Criteria for Colorado Taxpayers

To claim the Colorado 529 tax deduction, you must:

• Be a Colorado taxpayer (resident or part-year)
• Make contributions to a CollegeInvest 529 plan
• File a Colorado state income tax return

You don’t have to be the beneficiary’s parent—grandparents, aunts, uncles, and friends can contribute and claim the deduction, as long as the contributions go into a Colorado-sponsored 529 plan.

Contribution Limits and Tax Benefits

For the 2025 tax year, Colorado taxpayers can deduct up to:

• $25,400 per taxpayer, per beneficiary for single filer
• $38,100 per tax filing, per beneficiary for joint filing

For the 2026 tax year, Colorado taxpayers can deduct up to:

• $26,200 per taxpayer, per beneficiary for single filer
• $39,200 per tax filing, per beneficiary for joint filing

These limits are per beneficiary, meaning if you have multiple beneficiaries, you can claim deductions for each, provided you contribute to separate CollegeInvest 529 accounts for them.

It’s important to note that while contributions are deductible for Colorado state income tax purposes, they are not deductible on your federal income tax return.

There’s no annual contribution limit in Colorado for 529 plans, but contributions are subject to the federal gift tax exclusion of $19,000 per individual ($38,000 per couple) in 2025.

Keep in mind, however, that contributions must be made by December 31 of the calendar year to be deductible for that year’s taxes.

Maximizing Your 529 Contributions

Making consistent contributions—and taking advantage of advanced funding strategies—can dramatically boost your 529 savings while enhancing your state income tax benefits. Here’s how you can maximize your impact.

Strategies for Consistent Contributions

Set up automatic monthly contributions to your 529 plan. Not only does this help you stay consistent, but it also enables dollar-cost averaging, which can reduce investment volatility over time. Many families find that budgeting even $100–$200 per month can make a substantial difference over 18 years.

Understanding the Five-Year Forward Rule

You can also “superfund” a 529 plan by contributing up to five years’ worth of the annual gift tax exclusion in a single year—$95,000 per beneficiary in 2025, or $190,000 per couple. This strategy allows for significant tax-free growth without immediate tax consequences. Just be aware that this limits your ability to make additional contributions for that beneficiary during the next four years without triggering gift taxes.

Withdrawals and Their Tax Implications

Understanding how withdrawals are taxed (or not taxed) is just as important as knowing how to contribute. Let’s take a closer look at the rules for pulling money out of a 529 plan without incurring taxes and penalties.

Qualified vs. Non-Qualified Withdrawals

Withdrawals from a 529 plan are tax-free at both the federal and state levels only if they’re used for qualified expenses, such as:

• Tuition and fees
• Books and supplies
• Room and board (if enrolled at least half-time)
• Computers and internet access
• Apprenticeships (including fees, books, supplies, and necessary equipment)

Non-qualified withdrawals, on the other hand, are subject to federal income tax on earnings and a 10% penalty, plus potential recapture of any state tax deductions claimed in prior years.

Impact on Financial Aid Eligibility

Money in a 529 account owned by a parent is reported as a parental asset on the FAFSA and has minimal impact on financial aid eligibility, typically reducing aid by a maximum of 5.64% of the asset’s value. If a grandparent owns the 529 account, withdrawals no longer impact federal financial aid eligibility under the updated FAFSA rules beginning with the 2024–2025 school year. However, some private colleges that use the CSS Profile may still consider these distributions when determining institutional aid.

Rollover Options for 529 Plans

Life happens—goals change, students change, and sometimes, so do savings plans. Fortunately, 529 plans offer flexibility through rollovers and beneficiary changes. Here’s what you should know.

Transferring Funds Between Beneficiaries

Did your child get a scholarship or decide not to pursue higher education? You can change the beneficiary of a 529 plan to another qualified family member—like a sibling or cousin—without triggering taxes or penalties.

Rolling Over Out-of-State 529 Plans to Colorado

If you have a 529 plan from another state, you can roll it over into a Colorado CollegeInvest plan. The principal portion of out-of-state rollovers is now eligible for the Colorado state tax deduction. Note that earnings on the rollover are excluded. Also, rolling funds out of a CollegeInvest account to another state may require you to add back previously claimed deductions to your Colorado taxable income.

Common Mistakes to Avoid with Colorado 529 Withdrawals and Taxes

Even with the best intentions, small mistakes can lead to lost tax benefits or unexpected penalties. Here are some frequent pitfalls and how to avoid them.

Overlooking Contribution Deadlines

To qualify for the Colorado 529 contribution tax deduction, contributions must be made by December 31 of the applicable tax year. Don’t wait until the last minute, as some financial institutions may have cutoffs a few days before year-end.

Misunderstanding Qualified Expenses

Expenses like transportation, health insurance, or extracurricular activity fees do not qualify for tax-free 529 withdrawals. If you use funds for non-qualified expenses, you may owe taxes and penalties, and you risk losing prior state income tax benefits.

Recent Legislative Updates Affecting Colorado 529 Plans

Education savings plans aren’t static, and rules and contribution limits can evolve over time. Staying up to date on the latest legislative changes ensures you’re making the most informed decisions for your family’s future.

Changes in Contribution Limits

The overall lifetime contribution limit across all CollegeInvest 529 accounts for the same Beneficiary is $500,000. Once the aggregation of all account balances meets or exceeds this limit, additional contributions are prohibited but the account may still continue to accrue earnings. This cap may be adjusted periodically to reflect rising education costs, so be sure to check the latest CollegeInvest legislative updates.

Final Thoughts: Make the Most of Your Colorado 529 Tax Benefits

Saving for education can feel overwhelming, but Colorado’s 529 plans offer families an incredible opportunity to build a strong financial foundation while enjoying powerful tax benefits along the way. From unlimited state income tax deductions to tax-free withdrawals for qualified education expenses, the advantages are hard to beat.

By making consistent contributions, understanding qualified uses of the funds, and staying informed about legislative updates, you can ensure your savings strategy is both effective and tax-efficient. Whether you’re just starting your 529 journey or refining an existing plan, tapping into the Colorado 529 tax deduction is a smart move for securing your family’s educational future.

Frequently Asked Questions About Colorado 529 Tax Deductions

Can Grandparents Contribute and Receive Tax Benefits?

Yes! In Colorado, any taxpayer who contributes to a CollegeInvest 529 plan can claim a state income tax deduction, regardless of their relationship to the beneficiary. Grandparents, aunts, uncles, or even friends can enjoy the tax benefits of giving the gift of education.

Are There Income Restrictions for Claiming the Deduction?

No. Unlike some tax benefits, the Colorado 529 tax deduction is available to all Colorado taxpayers, regardless of income level. There are no income restrictions or phase-outs.

What Happens to the Tax Deduction if I Roll Over Funds to Another State’s 529 Plan?

If you roll over funds out of a CollegeInvest 529 plan to another state’s plan, Colorado requires you to recapture previously deducted contributions. That means the amount you deducted in prior years must be added back to your Colorado taxable income, potentially increasing your tax bill.

Understanding the rules for withdrawing from a 529 plan is key to maximizing its benefits and avoiding costly mistakes. Whether you’re paying for tuition, books, or housing, following the correct 529 disbursement rules ensures your withdrawals remain tax-free. In this guide, we’ll walk you through five essential steps for withdrawing funds wisely and staying compliant with both federal and state regulations.

Step 1: Calculate Your Qualified Education Expenses

The foundation of a smart 529 college savings plan withdrawal strategy is knowing exactly what your qualified education expenses will be. This step ensures you only withdraw what’s necessary, avoiding unnecessary tax implications or penalties. Here’s how to approach it:

Identify Eligible Expenses

Begin by listing expenses that are considered qualified under IRS rules, which typically include:

• Tuition and Required Fees: The primary cost of education.
• Room and Board: For students enrolled at least half-time. If the student lives off campus, 529 withdrawals for room and board cannot exceed the cost of attendance determined by the school.
• Books and Supplies: Necessary textbooks, lab materials, and other academic supplies.
• Technology Costs: Computers, educational software, and computer equipment are all qualified education expenses.

Important Note: Deduct Tax-Free Educational Assistance

When calculating your qualified education expenses, make sure to deduct any fees or costs already covered by tax-free educational assistance. This prevents duplicate benefits. Examples include:

• Scholarships: Any funds received as scholarships.
• Grants: State, federal, or institutional grants that reduce the cost.
• Tax-Free Loans or Assistance: Other forms of aid provided directly to reduce tuition or fees.
• Employer Assistance: Tuition reimbursement or other employer-sponsored education benefits.

By subtracting these amounts from your total expenses, you ensure that your 529 plan withdrawals only cover the remaining qualified costs.

Example: Lucas’s College Expenses (Full-Time Student)

To help showcase how this would work in real life, here is a sample situation for calculating a 529 withdrawal for the average student. Consider Lucas, a full-time student attending a four-year university. Here’s how he calculates his qualified education expenses for the academic year:

• Tuition and Fees: Lucas’s annual tuition and fees come to $25,000.
• Room and Board: As a full-time student, Lucas qualifies for room and board expenses, which total $12,000 for the year.
• Books, Supplies, and Technology: He estimates spending about $2,000 on textbooks, lab supplies, and necessary technology like a computer or specialized software.

Calculating Total Qualified Expenses:

Before accounting for any external aid, Lucas’s total expenses add up to:

$25,000 (Tuition and Fees) + $12,000 (Room and Board) + $2,000 (Books, Supplies, and Technology) = $39,000

Deducting Tax-Free Educational Assistance:

Lucas has been awarded a $7,000 scholarship. Since scholarships count as tax-free educational assistance, he must subtract this amount from his total qualified expenses.

Adjusted qualified expenses = $39,000 – $7,000 = $32,000

In this example, Lucas would plan his 529 plan withdrawal to cover the $32,000 of remaining qualified education expenses. This careful calculation ensures he withdraws only what is necessary and remains compliant with IRS regulations.

Curious how your numbers compare? Try our College Savings Calculator to estimate your own expenses.

Step 2: Determine When to Withdraw

One of the most important things to remember about 529 plan distributions is that you can take them during the same calendar year you pay for qualified education expenses. While it’s helpful to track an academic calendar for due dates, aligning your withdrawals with the calendar year of the expenses is key to maintaining the tax-free status of your 529 funds.

Matching Withdrawals to the Calendar Year

• Same Year, Same Expenses: If you pay tuition in 2025, make sure you withdraw 529 funds in the 2025 tax year. If you wait until January 2026 to make the withdrawal for a 2025 expense, that withdrawal may not be considered qualified.
• “Catch-Up” Distributions: If you already paid for a qualified expense out of pocket earlier in the year (e.g., August 2025) and didn’t make a 529 withdrawal at that time, you can still withdraw later in the same year (December 2025) to “catch up.” As long as the withdrawal and expense occur in the same calendar year, you should remain compliant.

Example: Lucas’s Timing for Tuition Payments

Let’s revisit Lucas, our full-time college student.

Fall Semester (August 2025):

Lucas pays his fall tuition in August 2025. To keep things simple, he immediately withdraws from his 529 plan in August 2025, matching the payment date and year.

Spring Semester (January 2026):

The university’s second-semester tuition is due in January 2026. Since this expense falls in a new calendar year, Lucas should make his withdrawal in 2026 as well—ideally, before or around the time he pays that bill. If he were to pay the January 2026 tuition in December 2025, he’d need to withdraw funds in December 2025, because the expense would be considered incurred in 2025.

Why This Matters

• Tax Compliance: If the IRS sees a mismatch between the year you withdrew funds and the year the expenses were paid, you could be subject to federal income tax and an additional 10% federal penalty.
• Easier Recordkeeping: By keeping expenses and withdrawals in the same calendar year, you’ll find it simpler to track and prove that you used your 529 distributions correctly.

Processing Times and Methods

Plan for Processing Delays: It may take days or weeks to process some withdrawal requests, so don’t wait until the last minute.

Online vs. Paper Requests
Online withdrawals often process faster than paper forms. Confirm with a CollegeInvest representative how quickly you can expect funds to be disbursed.

Step 3: Decide Which 529 Plan Account to Withdraw From

If your family has more than one 529 plan account, choosing the right one to withdraw funds from can significantly impact your overall savings strategy, financial aid eligibility, and tax benefits. Here’s how to make the best decision:

Consider State Tax Benefits

Each state offers different advantages when it comes to 529 plans, including potential state tax deductions or credits. If you have both in-state and out-of-state plans, strategically using these can maximize your overall benefits. For example, Colorado taxpayers enjoy a state income tax deduction on contributions to CollegeInvest 529 accounts – learn more about these benefits on our Benefits of a 529 Plan page.

Example: Lucas’s parents have two 529 accounts—one in-state (with a state tax deduction) and one out-of-state. They first withdraw from the out-of-state account, preserving their in-state account to continue benefiting from their state’s tax deduction for future contributions. For Colorado residents, qualified withdrawals from CollegeInvest 529s are not subject to recapture of prior state tax deductions. However, non-qualified withdrawals may trigger recapture.

Evaluate Investment Risk and Growth Potential

Collegeinvest 529 plans often have varied investment strategies—some aggressive with higher growth potential and others more conservative. Consider the current market conditions when selecting which account to withdraw from:

• In positive market conditions, it may be wise to withdraw funds from accounts that experienced significant recent gains to “lock in” that growth.
• During volatile or declining markets, consider withdrawing from more stable accounts to give aggressive accounts time to recover.
• Example: Lucas’s family has an aggressive-growth account and a stable-value account. Due to strong market performance recently, they decide to take their withdrawal from the aggressive-growth account, securing those gains now.

Use Beneficiary and Sibling Strategies

If you have multiple children or family members with separate 529 accounts, you can strategically transfer leftover funds between beneficiaries:

• If one child doesn’t fully utilize their funds, you can change the beneficiary to another eligible family member, including siblings.
• This approach helps ensure all available funds are used optimally and reduces the risk of non-qualified withdrawals later.

Example: Lucas’s younger sister, Mia, also has a 529 account. If Lucas graduates and still has funds remaining, his parents can transfer those leftover funds into Mia’s account, allowing her to benefit from the unused balance without penalty.

FAFSA and Financial Aid Implications

Withdrawals from parent-owned accounts typically have a smaller impact on financial aid eligibility compared to grandparent or other third-party accounts:

• To simplify FAFSA reporting and reduce the potential impact on financial aid, withdrawing first from parent-owned accounts is generally advisable.
• Grandparent-owned funds are not currently counted directly on the FAFSA, but may impact institutional financial aid calculations (CSS Profile).

Example: Lucas’s grandparents also have a CollegeInvest 529 account in his name. To avoid complexity in financial aid calculations, Lucas’s family decides to first use the parent-owned account, keeping the grandparent-owned funds available for later years or for other siblings, minimizing potential financial aid disruptions.

By carefully evaluating state tax benefits, investment strategies, sibling and beneficiary options, and financial aid considerations, you can confidently choose which 529 account to withdraw from first, optimizing your educational savings.

Step 4: Complete Your Withdrawal Request

Once you’ve identified your qualified expenses and selected the appropriate 529 account, it’s time to formally request your withdrawal. Although straightforward, careful attention to detail can save headaches down the road. Here’s a step-by-step guide:

Initiating the Withdrawal Request

We provide three convenient methods for withdrawals:

• Online: Usually the fastest and simplest method. Just log in through the CollegeInvest online portal and follow our guided instructions.
• Paper Form: We also offer paper-based withdrawal forms. Just follow the instructions to make your qualified withdrawal.
• Phone: For Direct Portfolio and Scholars Choice accounts, Qualified Higher Education Expense withdrawals can also be made by phone. This may be useful if you’re unable to access the portal or need help with your request.

For speed and simplicity, using the online portal is often the recommended method.

529 Withdrawal Information You’ll Need

Prepare the following before starting your withdrawal request:

Beneficiary Information:

• Beneficiary’s full name.
• Beneficiary’s 529 account number.

Educational Institution Information:

• Name and address of the school.
• Student ID number.

Withdrawal Amount:

• Clearly calculated from Step 1.
• Make sure it matches the qualified expenses to avoid penalties.

Choosing the Payment Recipient

You’ll generally have two options for who receives the funds:

Payment Directly to the Institution:

• Advantages: Simplifies paperwork, minimizes record-keeping requirements.
• Ideal for paying tuition bills directly.

Payment to the Account Owner (Reimbursement):

• Advantages: Offers flexibility to pay expenses yourself and then reimburse.
• Ideal if you’ve already paid the expenses out-of-pocket.

Payment to the Beneficiary:

• Advantages: Useful if the student is managing their own qualified expenses.

Note: As with all 529 withdrawals, proper documentation is required to prove the expenses are qualified.

Processing Times and Planning Ahead

Typically, withdrawals take about 3 to 10 business days to process and transfer funds. During peak times, such as the start of a semester, processing may take longer. Plan accordingly:

• Submit your request early, especially for large payments like tuition and room and board.
• Avoid last-minute submissions to ensure funds arrive on time.

Documentation and Record-Keeping

Keep meticulous records of your withdrawal requests and related documents:

• Withdrawal confirmations and transaction receipts from CollegeInvest.
• Tuition bills, receipts, or invoices for books, technology, or room and board.
• Proof of scholarships or grants you deducted earlier.

These records are crucial in the event of an IRS inquiry or for general tax-reporting purposes.

What If You Make a Mistake?

If you accidentally request the wrong amount or make an error on the payee information, act quickly:

• Contact CollegeInvest immediately.
• Ask if we can adjust or cancel the withdrawal request.
• If the funds are already distributed, contact the institution to manage the situation or reimburse your 529 account promptly.

Example: Lucas’s Withdrawal Request

Lucas’s parents are ready to pay his Fall semester tuition:

• They log into their 529 account online.
• They provide Lucas’s personal information, university details, and the exact withdrawal amount ($16,000 for the fall semester).
• They opt to send payment directly to Lucas’s university to simplify their record-keeping.
• They submit the request three weeks ahead of the tuition deadline to ensure timely processing.
• After the payment, they retain digital copies of the withdrawal confirmation and tuition bill in their records for tax purposes

Step 5: Plan for the Future: Optimize or Repurpose Remaining Funds

Once you’ve successfully navigated the withdrawal process and covered your qualified expenses, you might still find yourself with leftover funds in your 529 account. Whether due to scholarships, lower-than-expected costs, or graduation ahead of schedule, having surplus funds in your 529 account isn’t unheard of. Fortunately, there are several smart options available to help you manage or repurpose these remaining funds effectively.

Consider Changing Beneficiaries

One of the biggest advantages of a 529 plan is its flexibility. You can easily change the beneficiary to another eligible family member without incurring taxes or penalties. Eligible beneficiaries can include:

• Parents, stepparents, or ancestors (e.g., grandparents)
• Siblings (including step, half, and adopted siblings)
• Children, stepchildren, or descendants (e.g., grandchildren)
• Nieces or nephews
• Aunts or uncles
• In-laws (sons/daughters-in-law, brothers/sisters-in-law, etc.)
• First cousins
• Yourself or your spouse

Note: A legally adopted child of an individual shall be treated as the child of such individual by blood.

Example: Lucas graduates with $8,000 still in his 529 account. His younger sister, Ava, will be starting college next year. Lucas’s parents simply change the beneficiary of the account from Lucas to his sister, allowing those funds to support her future education expenses without penalty.

Save Funds for Graduate Studies or Grandchildren

Just because the undergraduate journey ends doesn’t mean educational expenses are over. Many families leave leftover 529 plan funds invested for potential graduate school, advanced degrees, or grandchildren. There’s no expiration date for these accounts, allowing your investment to continue growing tax-free.

Example: If Lucas decides to pursue graduate studies or a professional certification later, the leftover 529 funds remain available. Lucas’s parents simply leave the funds invested, continuing to grow tax-free until he needs them again.

Estate Planning Opportunities

If changing beneficiaries isn’t your preferred route, leftover 529 funds can serve as part of your family’s broader financial strategy. You could maintain the account as a long-term investment, eventually transferring the benefits down to grandchildren or future family members. Because 529 plan contributions are often treated as completed gifts for estate planning purposes, leftover funds could also provide long-term, tax-advantaged wealth transfer opportunities for your family.

Tax Implications of Non-Qualified Withdrawals

If none of these strategies fit your circumstances and you decide to withdraw the leftover money for non-educational purposes, be aware of potential tax implications:

• Non-qualified distributions are subject to ordinary income tax on earnings.
• Additionally, you may face a 10% federal penalty on earnings withdrawn.
• Colorado residents: Non-qualified withdrawals from CollegeInvest 529 accounts may trigger recapture of previously claimed state tax deductions.

However, certain exceptions to the 10% penalty apply, such as:

• The beneficiary receiving a scholarship.
• The death of the beneficiary.
• Acceptance into a U.S. military academy or receiving military-provided educational assistance.

Careful planning and consulting a financial advisor can help avoid these unnecessary taxes and penalties.

Putting It All Together: Your Path to Successful 529 Plan Withdrawals

Navigating 529 plan withdrawals might initially seem complex, but by following these five clear steps, you can confidently manage your education savings while maximizing their tax advantages. From carefully calculating qualified education expenses and timing your withdrawals within the correct calendar year, to strategically choosing the right account and successfully completing the withdrawal process, every step helps ensure you remain tax-compliant and financially efficient.

Remember, planning doesn’t stop once you’ve made a withdrawal. Thoughtfully repurposing remaining funds can create significant financial opportunities for your family, such as supporting another child’s education, funding future graduate studies, or integrating leftover funds into your overall estate plan. Each of these options can set your family up for lasting financial success.

By staying informed, documenting carefully, and planning proactively, you can turn your 529 plan from just an education savings account into a dynamic financial tool that continues to serve your family’s evolving needs—both now and far into the future.