What is a 529 plan?
A 529 plan, also known as the “Qualified tuition program,” is a great way to save for college that has some nice tax benefits.
529 plan defined
The IRS defines a 529 plan as “a plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training for a designated beneficiary, such as a child or grandchild.”
Many parents and grandparents start a 529 when their children are young, and then contribute every year until their child is all grown up and ready to start using the funds to go to college. The big advantage comes when your beneficiary uses the funds - when used for qualified education expenses, it’s tax free for federal taxes and usually tax-free for states!
Each state has their own 529 plan and their own rules about taxability. Some states even offer a deduction on your state income taxes if you use their plan. You aren’t required to have a plan in the state you live in, so you can shop around. As always, make sure to consult your tax advisor about what works best for your situation.
Looking to offer a 529 plan to your employees? Learn more here.