All You Need to Know About 529 College Savings Plans

A 529 plan can help you invest in your child’s college education as soon as possible.

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The average cost of going to college is about $30,000 per year. So it could help to start saving for your child’s college education as soon as possible. And you can start investing in your child’s future now by opening a 529 college savings plan. You can think of it as a 401(k) for college expenses. But there’s more to it than that.

So let’s take a closer look.

What Is a 529 Plan?

A 529 college savings plan allows you to invest for a child’s college education and pay for expenses such as tuition, books, and supplies required for enrollment. It also offers distinct tax benefits, such as:

• Earnings on your contributions that grow tax-free.

• Tax-free withdrawals as long as they’re used for qualified college expenses.

• In some states, state-level tax deductions or credits based on your contributions.

Nearly every state sponsors a 529 plan. But you can open anyone you want. Plus, your child can use the funds to attend schools in or out of state.

What Are Qualified Educational Expenses?

You can use your 529 plan funds tax-free on a variety of expenses, including the following:

• College tuition and fees

• Room and board (for at least half-time students)

• Books and supplies required for enrollment

• Computers and internet access

• K–12 tuition (up to $10,000 per year per beneficiary)

• Student loan repayment (up to $10,000 lifetime limit per beneficiary)

How Do 529 Plans Work?

When you open a 529 plan, you generally have a variety of investment options, such as mutual funds. Many also offer age-based portfolios. These are professionally managed portfolios that aim to change asset allocation over time in order to become more conservative and retain savings.