529 vs Savings Account Calculator
Compare saving for a child in a tax-advantaged 529 plan versus an ordinary taxable savings account over time.
How it works
FV = PMT × ((1+i)^n − 1) ÷ i, i = rate/12, n = months · Savings uses after-tax rate = APY × (1 − tax) · Advantage = 529 − savings
A 529 plan grows free of federal tax when the money is spent on qualified education, while an ordinary savings account is taxed on its interest every year — a drag that compounds against you. Because 529s are typically invested in market funds, they also assume a higher long-run return than a cash savings account, widening the gap over an 18-year horizon. The trade-off is flexibility: 529 earnings used for non-education purposes face income tax plus a 10% penalty.
Worked example
$200 a month for 18 years is $43,200 contributed. At 6% tax-free, a 529 grows to about $77,500. A savings account at 4% APY taxed at 22% earns an effective 3.12%, reaching roughly $57,900 — a 529 advantage near $19,600.
Sources: IRS — 529 Plans
Frequently asked questions
What is the main advantage of a 529 plan?
Investment growth is free of federal tax (and often state tax) when withdrawals pay for qualified education such as tuition, fees, books and room and board. Many states also offer a tax deduction or credit on contributions.
What if my child doesn’t go to college?
You can change the beneficiary to another family member, use funds for trade school or apprenticeships, or (subject to limits) roll some into a Roth IRA. Non-qualified withdrawals of earnings owe income tax plus a 10% penalty.
Why is the savings account return lower here?
Two reasons: cash APYs are usually below long-run market returns, and interest is taxed annually. This tool applies your tax rate to the savings APY but lets the 529 compound untaxed, which is what drives the difference.
Related calculators
Educational estimate, not financial or tax advice. 529 tax treatment depends on qualified use and your state.