Lana Oconnell
NEST 529 is a tax-advantaged college savings plan that can be used to pay for a wide range of qualified higher education expenses. While 529 plans are typically used to cover college tuition and fees, recent changes in legislation have expanded the use of these plans to include K-12 tuition and student loan repayments. As of 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act allows for penalty-free withdrawals from 529 plans to repay student loan debt for the beneficiary and their siblings, up to a lifetime limit of $10,000 per person. This act also expanded the definition of qualified expenses to include apprenticeship costs.
| Characteristics | Values |
|---|---|
| Name | Nebraska Education Savings Trust (NEST) |
| Type | 529 College Savings Plan |
| Purpose | Saving for college |
| Tax benefits | Nebraska state tax deduction, tax-deferred growth, tax-free withdrawals |
| Rollover | Allowed up to $35,000 to a Roth IRA |
| Student loan repayment | Allowed up to $10,000 per person |
| Eligibility | No income limits, anyone can contribute |
| Qualified expenses | Tuition, fees, room and board, special needs equipment, online courses, K-12 expenses |
| Control | Account owner determines when and where funds are paid |
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What You'll Learn
Using NEST 529 funds to pay off student loan debt
The Nebraska 529 plan, or NEST, is a tax-advantaged college savings plan that can be used to pay for a wide range of qualified higher education expenses. While 529 plans are primarily intended for higher education expenses, recent changes in legislation have expanded their functionality.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 allows for penalty-free 529 distributions to be used to repay a beneficiary's student loan debt, up to a lifetime limit of $10,000. This means that if you have leftover money in your 529 plan after graduating, you can use those funds to pay off your student loans or those of your designated beneficiary. The SECURE Act also allows for additional withdrawals of up to $10,000 for each of the beneficiary's siblings. For example, a family with three children could withdraw a total of $30,000 to pay off student loans. It is important to note that the portion of student loan interest paid by these distributions is ineligible for the student loan interest tax deduction for regular income taxes.
In addition to the SECURE Act, the Tax Cuts and Jobs Act (TCJA) of 2017 expanded the use of 529 plans to include paying for K-12 tuition and expenses such as books and materials. The One Big Beautiful Bill Act of 2025 further expanded the use of 529 plans to cover additional K-12 expenses. The SECURE 2.0 Act of 2022 allows for rollovers of up to $35,000 from a 529 plan into a Roth IRA, although this is subject to annual contribution limits and the age of the 529 plan.
It is important to note that the rules regarding 529 plans and qualified expenses may vary by state, and certain states may impose tax penalties for specific uses of 529 plans. Therefore, it is advisable to review your state's definition of qualified 529 expenses and consult with a qualified tax advisor to understand the tax implications of any withdrawals or rollovers.
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Qualified expenses and withdrawals
A NEST 529 plan is a tax-advantaged college savings plan that can be used to pay for a wide range of qualified higher education expenses. These expenses include tuition and fees, room and board, special needs equipment, and online college courses, as long as the beneficiary is enrolled at an eligible institution. The account owner controls the account and determines when and where the funds are paid.
Qualified higher education expenses for 529 plans also include up to $10,000 per year per student in tuition for K-12 schools. As of July 4, 2025, additional K-12 expenses such as books and materials, tutoring, and exam fees are also considered qualified expenses. The Tax Cuts and Jobs Act of 2017 allows families to use a 529 plan to pay for these K-12 expenses, and the limit will increase to $20,000 in 2026.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 allows for penalty-free 529 distributions to be used to repay a beneficiary's student loan debt, up to a lifetime limit of $10,000. The SECURE Act also permits additional withdrawals of up to $10,000 for each of the beneficiary's siblings. It's important to note that the portion of student loan interest paid by these distributions is not eligible for the student loan interest tax deduction for regular income taxes.
The SECURE Act 2.0 expanded the definition of qualified 529 expenses to include transfers of leftover funds to a beneficiary's Roth IRA. Under this provision, up to $35,000 can be transferred tax-free and penalty-free if certain requirements are met. However, these rollovers are still subject to annual Roth IRA contribution limits, and the 529 plan must have been open for more than 15 years.
When withdrawing funds from a NEST 529 plan, the money can be paid directly to the account owner, the beneficiary, a college or university, or the account owner's bank account. It's important to review the options and understand the tax consequences of withdrawing funds. While there are tax benefits to using a 529 plan, non-qualified withdrawals may be subject to taxes and penalties.
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Tax benefits and consequences
The NEST 529 plan, also known as the Nebraska Education Savings Trust, offers tax benefits for those saving for college. Account owners can claim a Nebraska state income tax deduction of up to $10,000 per year ($5,000 if married and filing separately). This benefit is available to both in-state and out-of-state investors, and there is no minimum contribution required. Additionally, earnings grow tax-free, and qualified withdrawals are also tax-free.
NEST 529 accounts also offer gift tax annual exclusions, allowing account owners to contribute up to $19,000 per beneficiary without the contribution being considered a taxable gift. For married couples who elect to "split" gifts, this exclusion is doubled to $38,000. Furthermore, a single contribution of up to $95,000 in a year will not be considered a taxable gift, provided no other gifts are made to the beneficiary in the same year and the succeeding four calendar years.
However, there are tax consequences to consider when withdrawing funds from a NEST 529 account. Non-qualified withdrawals are subject to taxes on the earnings portion, federal and state income taxes, and a 10% federal penalty tax. If a student receives a refund of qualified education expenses paid by a 529 distribution, they have 60 days to recontribute these amounts to avoid figuring out the taxable part of the distribution.
It is important to note that tax benefits must be coordinated with other programs providing tax benefits for higher education expenses to avoid duplication of benefits. For example, an American Opportunity or Lifetime Learning Credit can be claimed in the same year as a tax-free distribution from a qualified tuition program, but the same expenses should not be used for both benefits. Consulting a qualified tax advisor is recommended to navigate the various education benefits and their tax implications.
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Eligible institutions
The NEST 529 plan is a college savings plan that offers a tax deduction to help you save for college. It is a tax-advantaged investment account that can be used for future education expenses. NEST 529 funds can be used for a wide range of qualified expenses at eligible institutions. These expenses include college tuition and other qualified college expenses. The beneficiary of the account is the individual whose qualified college expenses can be paid.
The eligible institutions for NEST 529 plans are colleges or universities that are recognised as 'eligible institutions' under Section 529. To determine if a particular institution is eligible, you can use the Federal School Code Lookup tool. This tool allows you to select a state and input the full or partial name of a school to find out if it is recognised as an eligible institution for Section 529 purposes.
For schools outside of the US, you can select CN for Canada, MX for Mexico, or FC for foreign country in the 'state' field. The listing is based on the US Federal School Code system, which is used to identify eligible institutions for federal student aid programs. It is important to note that some institutions may take three to seven business days to post payments to a student account, so sufficient time should be allowed for mail time and processing by the school.
Additionally, it is worth noting that Nebraska offers a state tax deduction for contributions to a 529 plan, which can further benefit those saving for college. This deduction is up to $10,000 for single filers, $10,000 for married filing jointly, and $5,000 for married taxpayers filing separate returns. Eligible Nebraska newborns will also receive a $50 seed contribution to their NEST savings account through the Meadowlark program.
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Who can open a NEST 529 account
NEST 529 is a college savings plan that offers tax benefits to those saving for college. The plan is named after Section 529 of the IRS tax code, which provides tax breaks to those saving for education. NEST 529 is sponsored by the state of Nebraska and offers a state tax deduction for contributions of up to $10,000 for single filers, $10,000 for married filing jointly, and $5,000 for married taxpayers filing separate returns. Nebraska also offers a $50 seed contribution for eligible Nebraska babies.
A NEST 529 account can be opened by almost anyone, with no income limits, and anyone can contribute. The beneficiary of the account must be a US citizen or resident alien with a valid Social Security number or other taxpayer identification number. The beneficiary is the individual whose qualified college expenses can be paid. As the account owner, you control the account and determine when and where funds are paid. Money from your NEST account can be paid directly to you as the account owner, to the beneficiary, to a college or university, or to the account owner's bank account.
NEST 529 funds can be used for a wide range of qualified expenses at eligible institutions, including tuition, fees, books, supplies, and room and board. The funds can also be used to pay off student loans, but it is important to consider the tax consequences when withdrawing funds.
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Frequently asked questions
A NEST 529 plan is a tax-advantaged college savings plan that can be used to pay for qualified higher education expenses at eligible institutions. It offers a variety of investment options and is named after Section 529 of the IRS tax code, which gives these plans special tax breaks.
Yes, you can use your NEST 529 plan to pay off student loan debt, thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. This allows for penalty-free 529 distributions for repaying a beneficiary's student debt, up to a lifetime limit of $10,000.
NEST 529 plans can be used for a wide range of qualified expenses, including tuition fees, room and board expenses (on-campus housing, off-campus rent, and meal plans), online college courses, and K-12 expenses such as books and materials, tutoring, and exam fees.
