What is a 529 plan?

A 529 plan is a type of savings and investment account in which money grows tax-free as long as the withdrawals are for qualified education expenses. They are named after a section of the IRS code.

There are two types of 529 plans:

  1. 529 college savings plans are the most common type. Investments grow tax-free and can be withdrawn tax-free for educational expenses such as tuition, room and board, and required textbooks.
  2. 529 prepaid plans let you prepay part or all of an in-state public tuition, locking in the tuition at time of payment.

Unlike retirement and other investment accounts, 529 plans are typically operated by states, which makes searching for the best option fairly easy; if your state offers a tax deduction for contributing, you’ll likely get the most bang for your buck by contributing to its plan.

–>529 Plan Rules<–

*Article from nerdwallet
Author Alana Benson

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