Educational Savings Plans

Educational savings plans

Educational Savings Plans

Educational savings plans, known as 529 plans, are tax-deferred savings accounts that can be used to pay for educational expenses. The District of Columbia and all states except Wyoming offer 529 plans.  

Educational savings plans

Educational savings plans, known as 529 plans, are tax-deferred savings accounts that can be used to pay for educational expenses. The District of Columbia and all states except Wyoming offer 529 plans.  

The cost of college has more than doubled in the 21st century. Currently the average in-state student at a public university spends over $27,000 per year, while the average private university student spends over $58,000 per year.  

Educational savings plans, known as 529 plans after a section of IRS code, are tax-deferred savings plans that can be used to pay for educational expenses. The District of Columbia and all states except Wyoming offer 529 plans.  

While 529 plans are usually used to pay for college costs, recent legislation allows them to cover K-12 education and apprenticeship programs, student loan repayments, and Roth IRA contributions. 

There are two types of 529 plans: college savings plans and prepaid tuition plans.

College Savings Plans 

By far the most common type of 529 plan, college savings plans allow anyone – but typically a parent or grandparent – to establish a savings and investment account for a beneficiary – typically a child or grandchild.  

The account holder contributes to the plan and chooses what to invest in. Investment options vary by state, but most states offer mutual funds including target-date funds and index funds. Some but not all states also offer socially responsible funds

Anyone including friends and extended family can contribute to a 529 plan. You can open a 529 plan in any state, not just the state where you live, but tax benefits vary.  

Maximum contribution limits also vary by state, from $235,000 in Mississippi and Georgia to over $500,000 in Pennsylvania, New York, and California. 

College savings plans can be used to pay for any qualified expense, including tuition, fees, books, and room and board. Because funds are contributed post-tax, withdrawals are tax free. 

Prepaid Tuition Plans 

Prepaid Tuition Plans allow you to lock in college or university tuition at the current rate for a beneficiary who will not be attending for years. Only nine states participate -- Florida, Maryland, Massachusetts, Michigan, Mississippi, Nevada, Texas, Virginia, and Washington – and the money can only be used to pay tuition. 

Prepaid tuition plans are a great hedge against the rising cost of tuition if you live in one of the nine states and your beneficiary knows they want to attend college in state. However, unlike college savings plans, the money cannot be used to pay for books, fees, room or board; nor can it be used for K-12 education or repay student loans. 

Socially Responsible 529 Plans

Investing for a child's education means investing in the future -- and you can use your investments to help create a better world for the children of today to inherit when they grow up.

Unfortunately, socially responsible funds are not available in every state 529 plan -- so you may have to look for an educational savings plan outside your state.

Fossil Free California lists several states that offer fossil-free or nearly fossil free options through three funds: the Parnassus Core Equity Fund (PRBLX), the Vanguard FTSE Social Index Fund (VFTAX), and the Fidelity Climate Action Fund (FCAEX).  

Portfolio NameStateUnderlying FundFee (%) (as of Jan 2025)
Specialty Portfolios – ESG Core EquityVirginiaParnassus Core Equity Fund (PRBLX)0.555
Individual Portfolios – Parnassus Core Equity 529IllinoisParnassus Core Equity Fund (PRBLX)0.695
Individual Portfolio Options – MA Climate Action PortfolioMassachusettsFidelity Climate Action Fund (FCAEX)Gross: 1.65
Net: 1.22
Individual Portfolios – Social IndexNew YorkVanguard FTSE Social Index Fund (VFTAX)0.12
Customized Age-based and Static -FTSE Social Index FundUtahVanguard FTSE Social Index Fund (VFTAX)0.12
Advanced Portfolios-Social Index FundFloridaVanguard FTSE Social Index Fund (VFTAX)0.14
Individual-Social Index PortfolioPennsylvaniaVanguard FTSE Social Index Fund (VFTAX)0.275
Vanguard Plans – FTSE Social Index PortfolioNevadaVanguard FTSE Social Index Fund (VFTAX)0.25
Fixed Portfolio Options – Social Index EquityMarylandVanguard FTSE Social Index Fund (VFTAX)0.34
Individual Portfolio – Socially Responsible PortfolioTexasVanguard FTSE Social Index Fund (VFTAX)0.73
Source: Fossil Free California, Guide to Fossil-Free 529 College Savings, 2025

Many 529 offer age-based "enrollment date" funds that shift from aggressive to more conservative portfolios as the child nears college age. California offers the only age-based ESG fund made up of several Nuveen and TIAA mutual funds. However, these funds are not fossil free. You can find out what a mutual fund or ETF holds by using As You Sow's Fossil Free Funds.

Your investments can be used to build a more sustainable and equitable world. Racial justice investing can help.

Green America is not an investment adviser, nor do we provide financial planning, legal, or tax advice. Nothing in our communications or materials shall constitute or be construed as an offering of financial instruments or as investment advice or investment recommendations. 

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