economicsTexas 529 plans help families save now on future college costs

As tuition rises, it’s never too early to consider a tax-advantaged education plan

Updated May 2026 | By Spencer Grubbs and Monica Murphy

For many Texas families, May marks the end of the school year — and a year closer to what comes next. Whether it’s a four-year university, community college or trade school, tuition rates keep rising, and a Texas 529 plan is one way to help plan for these costs.

What is a 529 plan?

Named after Section 529 of the Internal Revenue Service Code, 529 plans are tax‑advantaged plans — authorized by the IRS and administered by states — designed to help families save for education expenses. Earnings grow tax-deferred, and withdrawals used for qualified education expenses are federal tax-free. Families can choose between prepaid tuition plans and college savings plans:

• In a prepaid tuition plan, families can pre-pay all or part of the costs of an in-state public college education.
• With a college savings plan, account holders select an investment option when opening the account, usually based on budget and investment risk tolerance. An age-based portfolio is commonly selected, with investments based on a child’s age and adjusted automatically as they approach college. However, account holders can withdraw funds for qualified education expenses at any time.

National 529 College Savings Day, observed annually on May 29, promotes education and spreads awareness about the importance of these accounts.

How 529 plans work in Texas

Texas has three 529 plans to choose from.

The Texas Tuition Promise Fund® is the state’s prepaid tuition plan. With this plan, families lock in today’s rates for undergraduate resident tuition and schoolwide required fees at two- and four-year Texas public colleges and universities, excluding medical and dental schools. The Transfer Value of the account can also be used at:

• Texas private colleges and universities
• Out-of-state colleges and universities
• Medical and dental schools
• Career schools
• Registered apprenticeship programs

The Transfer Value is the lesser of 1) the costs that tuition units purchased in the plan would cover at a Texas public college or university, or 2) the original purchase price of the tuition units plus or minus the plan’s net investment earnings or losses on that amount.

Texas also has two college savings plan options.

The Texas College Savings Plan® is the state’s direct-sold college savings plan. In this plan, families can save for qualified education expenses at schools nationwide, including undergraduate and graduate tuition and fees, certain room and board expenses, books, and computer equipment.

The LoneStar 529 Plan® is similar to the Texas College Savings Plan, but families enroll in and maintain the account through their financial adviser.

Additional ways 529 plans can be used

While the original intent of 529 plans was directed specifically at higher education, federal legislation widened the scope. Under H.R. 1, passed by the 119th Congress and signed into law on July 4, 2025, a 529 plan may be used for:

• Expanded K-12 expenses and increased withdrawal limits: College savings plans can be used for additional K-12 expenses such as tuition, curriculum materials, books or other instructional materials, online educational materials, tutoring, dual enrollment courses, nationally standardized achievement tests and educational therapies for students with disabilities. Account holders may withdraw up to $20,000 per year per beneficiary for qualified expenses without federal tax penalties. Texas does not have a state income tax, but in states that do, tax consequences vary and could include the recapture of state tax deductions as well as penalties.
• Qualified post-secondary credentialing expenses: College savings plans can also be used for expenses related to enrollment or attendance of a beneficiary at a recognized postsecondary credential program. Expenses include tuition, fees, books, supplies and equipment required for or incurred in connection with a recognized postsecondary credential program, and fees for testing and continuing education if required to obtain or maintain the credential.
• Rollovers to an ABLE account: Funds in a college savings or prepaid tuition account may be rolled into a tax-advantaged ABLE account to save for qualified disability expenses for the beneficiary or a family member of the beneficiary, under specific conditions.
• Rollovers to a Roth IRA: The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 allows rollovers from a college savings or prepaid tuition account to a beneficiary’s Roth IRA account, subject to certain conditions.

Tax advantages of a Texas 529 account

A 529 account may be preferable to traditional savings accounts, certificates of deposit or taxable investments because earnings compound tax-deferred and qualified withdrawals are tax-free.

Over 18 years, a 529 college savings account could outearn a taxable account by 22% (Exhibit 1). However, because these are investment accounts, growth is not guaranteed and account holders may lose money, including the principal invested.

Exhibit 1 data

Estimated Account Growth Over 18 Years, Tax-free Account vs. Taxable Account

Account Type	Growth
Tax-free	$117,698
Taxable	$94,437

Notes: Illustration assumes an initial $1,000 contribution and monthly contributions of $300 for 18 years, as well as an investment return of 6%, compounded monthly, and a federal tax rate of 35%.

Source: JP Morgan Asset Management

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Climbing college tuition

College tuition rates have been rising across the country, and Texas is no exception. According to the Texas Higher Education Coordinating Board, the average cost of tuition and fees for 15 semester credit hours at the state’s public universities increased nearly 20% from fall 2017 to fall 2024 (Exhibit 2). At community colleges, tuition jumped 36% in the same time span. Public technical colleges saw a significantly bigger jump, with a 78% increase.

Lamar State Colleges are an exception to spiking tuition rates in Texas in recent years. In 2019, the colleges announced a 25% tuition cut after the 86th Legislature allocated the three institutions more than $17 million in additional state funding. Tuition rates were 35% lower in 2024 than in 2017.

Exhibit 2 data

Average Total Tuition and Fees at Texas Public Institutions of Higher Education, 2017-2024

Institution of higher education	2017	2018	2019	2020	2021	2022	2023	2024
Public Universities	$4,518	$4,719	$4,865	$5,048	$5,205	$5,249	$5,299	$5,366
Community Colleges	$1,520	$1,576	$1,624	$1,662	$1,693	$1,749	$1,793	$2,072
Public Technical Colleges	$2,621	$2,800	$2,893	$3,161	$3,950	$3,913	$4,276	$4,674
Lamar State Colleges	$2,819	$2,854	$2,130	$2,130	$1,781	$1,782	$1,817	$1,820

Notes: Tuition and fees are for resident undergraduate students enrolled in 15 semester credit hours.

For public universities, community colleges and state colleges, amounts reported include statutory tuition, designated tuition, average mandatory fee, and average college and course fee. For public technical colleges, amounts include tuition only.

Source: Texas Higher Education Coordinating Board

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Growth of Texas accounts and assets under management

Texas 529 plans have helped more than 250,000 Texas families prepare for education costs, with current assets under management of $2.8 billion as of Dec. 31, 2025. The number of active Texas 529 accounts and the total assets in those accounts have grown steadily almost every year in the past decade (Exhibit 3).

Exhibit 3 data

Number of Active Texas 529 Accounts and Total Assets, 2014-2025

Year	Active Accounts	Assets (in billions)
2014	71,119	$1.08
2015	75,497	$1.13
2016	79,223	$1.27
2017	79,547	$1.51
2018	86,180	$1.47
2019	89,349	$1.76
2020	92,648	$2.02
2021	96,571	$2.26
2022	99,400	$1.95
2023	102,165	$2.20
2024	107,614	$2.38
2025	101,271	$2.83

Note: Data as of Dec. 31 of each year.

Source: Texas Comptroller of Public Accounts

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Planning for tomorrow, today

It’s never too early — or, even for families of middle- and high-schoolers, too late — to get started with a Texas 529 plan. These plans offer tax advantages and flexible options to help Texans prepare for rising education costs.

The Texas Comptroller’s office also offers information and resources for scholarships and financial aid. Learn more about Texas college savings and educational opportunities.

Originally published May 2025. Updated May 2026.