Tax Advantages

Your 529 plan savings are tax-deferred, which means your savings might grow faster than comparable taxable accounts. And when you take money out from your 529 plan to pay qualified education expenses, those withdrawals 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 may vary.

Choice of Plans

Although details vary by state, 529 plans generally come in two forms. The first type is a college savings plan, which allows you to vary your contributions. You can use these plans to pay for qualified schools, including colleges, trade schools, and graduate schools.¹ 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. Under either plan, 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.

Investment Options

With 529 plans, you have a variety of investment choices that allow 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.