What’s a 529 Plan?
A 529 plan is a savings plan in the United States designed to give tax advantages to encourage savings for future higher education costs. It is named after section 529 of the Internal Revenue Code. 529 plans are run by state boards or the organizations they delegate the administration of the plan to.
With the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), 529 plans gained their current prominence, flexibility, and tax advantages. Previously plans falling under section 529 were limited to state pre-paid tuition plans. After EGTRRA, distributions from 529 plans for qualified higher education expenses at a qualified institution are exempt from income tax. The act also allowed the creation plans with a number of investment options, funded by guaranteed accounts and stock or bond mutual fund like options.
The income tax advantages have contributed significantly to their popularity as a college savings tool.
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