Investing 6 min read

How to Use Alabama’s 529 Plan (CollegeCounts) to Save for College

College costs rise 4–5% per year. Alabama’s CollegeCounts 529 plan lets you invest for your child’s education with tax-free growth and a state income tax deduction on contributions — a combination most Alabama families aren’t taking full advantage of.

What Is a 529 Plan?

A 529 plan is a tax-advantaged investment account designed specifically for education savings. Contributions grow tax-free, and withdrawals for qualified education expenses are tax-free at the federal level. Most states also offer a state income tax deduction for contributions to their own plan.

You can open a 529 for a child, grandchild, yourself, or anyone else. There’s no annual contribution limit (though contributions above the annual gift tax exclusion — $18,000 per person in 2026 — count against your lifetime estate exemption). You control the account as long as it exists.

Alabama’s CollegeCounts: The State-Specific Advantage

Alabama’s 529 plan is called CollegeCounts, administered by Union Bank & Trust. As an Alabama taxpayer, you can deduct contributions to CollegeCounts on your state income return:

  • Up to $5,000 per year for single filers
  • Up to $10,000 per year for married filing jointly

At Alabama’s 5% income tax rate, a married couple contributing $10,000/year saves $500 in state taxes annually — essentially a guaranteed 5% return on that portion before any investment growth. That deduction is available on contributions to any Alabama 529 plan beneficiary, regardless of whose child it is.

Alabama Taxpayer Advantage

You don’t have to use Alabama’s CollegeCounts plan — you can invest in any state’s 529 — but you only get Alabama’s state tax deduction when you use CollegeCounts. For most Alabama families, this makes CollegeCounts the default starting point.

How the Math Works

The earlier you start, the more compound growth does the heavy lifting.

~$21K
$50/month from birth (18 years, 7% avg return)
~$42K
$100/month from birth (18 years, 7% avg return)
~$84K
$200/month from birth (18 years, 7% avg return)

For context, four years at a public Alabama university currently costs roughly $100,000–$120,000 including room and board. Starting early and contributing consistently gets most families most of the way there without massive contributions.

What 529 Funds Can Pay For

Qualified expenses that can be paid with tax-free 529 withdrawals include:

  • Tuition and fees at accredited colleges, universities, and trade schools — in Alabama or anywhere in the country
  • Room and board (on-campus or off-campus, up to the school’s cost of attendance estimate)
  • Required textbooks, supplies, and equipment
  • Computers and internet access (if used for school)
  • K–12 tuition: up to $10,000/year per beneficiary (2026 law)
  • Student loan repayment: up to $10,000 lifetime per beneficiary
  • Apprenticeship programs registered with the Department of Labor

What Happens If Your Child Doesn’t Go to College?

This is the most common concern about 529 plans. The answer is more flexible than most people expect.

Change the beneficiary. You can change the beneficiary to any family member — a sibling, cousin, yourself, even a niece or nephew — with no tax consequences. The account simply continues for the new beneficiary.

Withdraw for non-qualified use. If you withdraw funds for non-education expenses, you’ll owe income taxes plus a 10% penalty on the earnings portion only (not the principal). If markets declined, there may be no earnings to tax.

Roll over to a Roth IRA. A 2024 rule change allows 529 funds to be rolled into a Roth IRA for the beneficiary — up to $35,000 lifetime, subject to annual Roth IRA contribution limits, and the 529 account must be at least 15 years old. This is a significant new flexibility that makes 529s lower-risk than they used to be.

The Risk Is Lower Than It Seems

The worst case — your child skips college entirely and you withdraw everything non-qualified — still means you only pay taxes and a 10% penalty on earnings, not the full balance. The principal you contributed is always yours to withdraw without penalty.

How to Open a CollegeCounts Account

Opening a CollegeCounts account takes about 15 minutes online at collegecountsalabama.com. You’ll need your Social Security number, the beneficiary’s Social Security number, and a bank account for the initial contribution (minimum is typically $25).

You’ll choose investment options from a menu of age-based portfolios and individual funds. The age-based options automatically shift to more conservative investments as the beneficiary approaches college age — a reasonable default for most families. You can change investment options twice per year.

How Much Should You Contribute?

A common framework: aim to cover roughly one-third of expected college costs through savings, plan to finance one-third through financial aid and scholarships, and leave one-third to future income (work-study, part-time employment, student loans if needed).

If that feels abstract, a simpler starting point: match your monthly contributions to your child’s age. $10/month at age 1, $50 at age 5, $100 by age 10. Adjust as your income allows. The key is to start — even small contributions compound meaningfully over 18 years.

Questions About Saving for Your Child’s Future?

TVACU can help you set up a savings account as a starting point and connect you with resources for long-term education planning.

Talk to TVACU →