What is a 529 college plan?
A 529 plan, also known as "qualified tuition plan," is a tax-advantaged investment plan that allows you to contribute to your child's higher education. These plans also allow others to contribute directly to the account – including friends, family, colleagues and acquaintances. The federal tax law places no income-level restrictions on who can make 529 plan contributions.
Tax & Other Potential Benefits
While plan contributions are not deductible on your federal return, plan earnings used for the account beneficiary's tuition and other qualified expenses are generally tax-free. There may be additional state tax benefits associated with investing in the 529 plan sponsored by the state where you or the beneficiary live. For example, some states have 529 plans that give tax deductions, scholarships or matching contributions to in-state investors.
How much will I need?
The amount you'll need to save depends on many factors, including:
- How far in advance you begin planning
- How many years of higher education you want to fund
- The rising future cost of tuition
- How much you've already put away
- Your federal and state tax rate
- The rate of inflation