Using a 529 college savings plan when saving for future education expenses can be an attractive option, as investments in the plan can grow tax-free. In this guide, you'll find what you need to know about 529 savings plan options and how to take that first step to set up a plan and start saving.
We’ll also answer frequently asked questions about 529 college savings plans and provide excerpts from our annual list of 529 plan ratings to help you find the best option for your situation.
What Is a 529 Plan?
Let’s look at the basics of a 529 plan. A 529 college savings plan is an investment vehicle that allows for a tax-advantaged way to pay for higher education costs.
With a 529 plan, you contribute aftertax dollars into an account, in which you can choose from a number of investment options, such as equity funds, bond funds, or a portfolio that gradually de-risks over the investment period. When the time comes, you can withdraw money, tax free (meaning you don’t have to pay capital gains taxes), to cover qualified educational expenses such as tuition, fees, books, a computer, and room and board.
You can also use a 529 plan to pay for graduate school, trade school, and, in some states, even K-12 private education.