What is a 529 Plan?

529 refers to Section 529 of the Internal Revenue Code. Section 529 lets you save and pay for qualified higher education expenses, free from federal (and most state) income taxes.

Today, there are three types of 529 plans:

• State-sponsored college savings plans. The value of these plans fluctuates with the markets. They can be used at both public and private colleges nationally and some colleges abroad.
• State-sponsored prepaid plans. These plans are designed primarily for use at in-state public colleges.
• Independent 529 Plan. This is the first private college-sponsored, national, prepaid 529 plan. It offers guaranteed tuition and the same federal tax advantages as the 529 savings plans originally specified by the IRS Code.

With all 529s—both savings, and prepaid programs—there is no income or age limit for participation. Both feature significant estate and gift tax benefits. For example, gifts to 529 plans allow you to reduce the taxable value of your estate and retain control of the funds. You can even open an account for yourself.

» See how Independent 529 Plan compares to other options.