A 529 plan is the most common tax-advantaged way to save for education. Its core benefit is straightforward, tax-free growth for qualified education costs, and recent changes have made it more flexible than the rigid college-only account many people remember.
You contribute after-tax dollars to a 529 account, the money grows tax-free, and withdrawals are tax-free when used for qualified education expenses. Many states offer a state tax benefit for contributions to their plan. The account has an owner and a beneficiary, and the owner retains control, an important feature for families thinking about gifting and estate planning.
Qualified expenses have broadened over time beyond just college tuition to include certain other education costs, and rules have been added allowing, under specific conditions, leftover funds to be moved in limited amounts toward a beneficiary's retirement account. The beneficiary can also generally be changed to another family member. This flexibility reduces the old worry of over-saving for a child who does not need it all.
Non-qualified withdrawals are generally taxed and penalized on the earnings, so the account works best for money genuinely intended for education. 529 plans can also interact with financial aid and estate planning in ways worth understanding. The specifics, state benefits, qualified expenses, and current rules, change and vary, so plan contributions and withdrawals with your tax advisor.
Tax-free for school, and more flexible than before.
This is general educational information, not personalized investment, tax, or legal advice. Consult a qualified professional about your situation.