If you find yourself intimidated by the ever-rising price of higher education, then a 529 plan might be a key component in saving for a college education. A 529 plan is a tax-advantaged way to save for college and pay for education expenses. Unlike some other savings vehicles, a 529 plan may allow you to make sizeable contributions. The funds may generally be used for any qualified college or education expense, including tuition, room, board, fees, books, supplies, and equipment. Tax benefits may be subject to certain restrictions.
Money in a 529 plan grows tax deferred. And you may be able to withdraw the money without having to pay federal and state income taxes-depending on the plan and where you live-as long as it's used to pay for qualified, education expenses.1 If the money from 529 plans is used for other purposes, the earnings portion of a withdrawal is subject to ordinary federal income tax, an additional 10% federal tax, and any applicable state income taxes. 529 plans may also affect a student's eligibility for financial aid.