529 plans offer a variety of tax benefits over traditional investment options. The growth in your account is tax-deferred, and distributions that are used to pay qualified education expenses are federal income tax-free. This includes payments for tuition, room and board. Some states also offer additional tax breaks, but it is important to check your state’s plans and rules because they vary.
Choice of Plans
Although details vary by state, 529 plans are flexible enough to meet your needs. 529 plans generally come in two forms. The first type is a college savings plan, which allows varied contributions. You can use these plans to pay for qualified schools including colleges, trade schools and graduate schools. Generally, you can also use your state’s college savings plan to pay for tuition in any other state. The second type is a prepaid plan, which allows you to “lock in” tuition rates at a specific school through lump-sum or monthly payments. If the child you originally started the plan for doesn’t go to college, you can use either type of plan for another child or even to further your own education.
The variety of investment choices provided by 529 plans allows you to select a strategy based on your needs and preferences, and the beneficiary’s age. Your investment options will vary based on the specific plan you choose.