Every state in the U.S. sponsors one or more
529 savings
plans, either individually or in conjunction with another
state. Each plan is run by a professional
money manager, such as a
brokerage firm
or mutual fund
company chosen by the state. When you open a 529 plan,
you can contribute money to an investment account for
the
beneficiary
that you name. That beneficiary can
be anyone — a
child, grandchild, cousin, or friend.
All the plans are alike in one way: Any earnings are free of federal income tax if the beneficiary uses them to pay for qualifying higher education expenses at any accredited college, university, or vocational school in the U.S. and certain schools abroad. In many states your earnings are exempt from state tax as well.
A plan for every taste
But the plans have differences as well. For example, certain plans let you choose the way your contributions are invested while other plans are highly structured. Some states let residents take an income tax deduction for contributions to the plan. Others don’t. Some plans have higher fees than others. And some plans have a better performance history than others.
Keep in mind that
the value of your investment in a 529 savings plan is subject
to what happens in the investment markets and the economy
in general, so there’s no guarantee that you’ll
reach your goal.
