Definition

A 529 savings plan, or qualified tuition plan, is a tax-advantaged savings program that allows you to save for educational expenses.

Administration

All 50 states and the District of Columbia sponsor state-run 529 plans along with a small group of private colleges and universities.

Investment Strategy

529 plans offer a variety of investment vehicles, including stock, bond and money market mutual funds. Investors are allowed to change their asset allocation once per year.

Tax Implications

Earnings are not subject to federal tax, however, each state has different regulations regarding 529 plans.

Withdrawal Restrictions

Money may only be withdrawn without penalty or taxes for qualified educational expenses, including tuition, housing, off-campus room and board, textbooks and required supplies or equipment, including computers. If your child does not attend college, you may still withdraw the money, but you will be subject to income tax withholding as well as a tax on earnings. However, the money can be transferred to someone else for educational use only.

Possible Disadvantages

Investments in a 529 plan are treated as parental assets and may affect a student's eligibility to receive need-based federal financial aid.

Source:

U.S. Securities and Exchange Commission Guide to 529 Plans

College Savings Plans Network