You've taken the first step toward your savings goals. Saving for college, graduate school or even a vocational school is more affordable with the tax-advantaged benefits offered by a 529 College Savings Plan.
A 529 College Savings Plan is a simple, affordable way for families to put aside money for college tuition and education-related expenses. The "529" refers to the section of the Internal Revenue Code that created these plans.
With a 529 plan, the more you save now, the less you may need to borrow in the future. Even small contributions can grow into something big.
The chart below illustrates how saving now could save you from spending a lot on student loans down the road.
Savings plans let you set aside money (typically $350,000 or more) in a professionally managed account that can be used at nearly every U.S. college and university.
Prepaid tuition plans are designed to allow you to lock in tomorrow’s tuition at today’s prices.
- Any withdrawals used to pay qualified higher education expenses are free of federal income tax and may be state tax-free as well.
- There are no income restrictions.
- The account holder (usually a parent) retains control of the assets.
- Some states offer additional tax benefits; for example, there may be a state income tax deduction for your contribution.
- Typically, 529 plans can be used in conjunction with other federal education incentives, such as Education Savings Accounts, the Hope Scholarship, and Lifetime Learning Credits.
Earnings on withdrawals not used for qualified educational costs may be subject to federal and state income taxes and a 10% federal tax penalty.
529 plans vary from state to state, and each has somewhat different costs, investment options, and tax incentives. In addition, an account holder may have limited investment options, depending on the particulars of the plan you select. When choosing the plan that works for your goal, compare the features of your state’s 529 plan with others to weigh the plan benefits.
Please note the plan's disclosure document includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.
In addition to a 529 college savings plan, you can consider a few other college funding strategies to help pay for qualified higher education costs.