529 Plan Educational Savings Account

Legally known as qualified tuition plans, these plans have come to be known by the 529 plan designation because they are authorized by Section 529 of the Internal Revenue Code. A 529 plan is a tax-advantaged savings plan that was developed to encourage saving for future college costs.

There are tax benefits to saving for college using a 529 plan. Earnings are not subject to federal tax or state tax as long as future withdrawals are used for qualified education expenses. Qualified education expenses are defined as:

1. The following expenses must be required for enrollment or attendance at an eligible educational institution (tuition and fees, books, supplies, and equipment).
2. The purchase of computer technology, equipment, or Internet access and related services used by the beneficiary while enrolled at an eligible educational institution.
3. Expenses for special needs services needed by a special needs beneficiary which are incurred in connection with enrollment or attendance at an eligible educational institution.
4. Expenses for room and board incurred by students who are enrolled at least half-time.

The 529 plan funds can be rolled over or transferred to another plan for either the same beneficiary or for a family member of the beneficiary. The 529 plan owner can also change the designated beneficiary to another family member without any tax consequences.

Be forewarned that earnings withdrawn from a 529 plan not used towards qualified education expenses are not only subject to income taxes, but also penalties.

There are two types of 529 plans: pre-paid tuition plans and college savings plans. Following is a chart that identifies the major differences between pre-paid tuition plans and college savings plans.

All fifty states and the District of Columbia sponsor at least one type of 529 plan. Following is a list of all 529 plans currently available.

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Upromise – Save for College the Smart Way!

Every time you make an eligible purchase, Upromise's partners return a portion of that money back to you. Those earnings accumulate in your Upromise account until you decide to use it to invest in a 529 plan, help pay down eligible student loans or assist with college expenses—all tax-free!