Notes

A 529 plan is a college savings plan that offers tax and financial aid benefits. 529 plans may also be used to save and invest for K-12 tuition in addition to college costs. There are two types of 529 plans: college savings plans and prepaid tuition plans. Almost every state has at least one 529 plan. There is also a 529 plan operated by a group of private colleges and universities.

History of 529 plans
The first 529 plan was a prepaid tuition plan established by the Michigan Education Trust (MET) in 1986.

529 plans are named after Section 529 of the Internal Revenue Code (IRC), which was added in 1996 to authorize tax-free status for 'qualified tuition programs'. Earnings in 529 plans accumulate on a tax-deferred basis and distributions are not taxed federally when used for qualified higher education expenses. The definition of qualified higher education expenses was expanded in 2015 to include computers and in 2017 to include up to $10,000 annually in K-12 tuition.

Can you use a 529 plan for any college?
You can invest in any state 529 plan, not just your own state’s 529 plan. 529 plans can be used to pay for college costs at any qualified college nationwide. In most plans, your choice of college is not affected by the state that sponsored your 529 college savings plan. You can be a California resident, invest in a Vermont plan and send your student to college in North Carolina. You can use your 529 plan at more than 6,000 U.S. colleges and universities and more than 400 foreign colleges and universities. Check to see if your institution is eligible under 529 rules.

Which states offer 529 plans?
Nearly every state now has at least one 529 plan available. It's up to each state to decide whether it will offer a 529 plan (possibly more than one) and what it will look like, meaning 529 plans can differ from state to state. You should research the features and benefits of your plan before you invest, research state 529 plans and even compare 529 plans.

Tax benefits
As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits, such as 5-year gift tax averaging and tax-free qualified distributions. See the top 7 benefits of 529 plans.

Some states offer state income tax incentives to investors as well, such as state income tax deductions and tax credits for contributions to the state’s 529 plan. Research your state's tax treatment.

Types of 529 plans
529 plans are usually categorized as either prepaid tuition or college savings plans.

College Savings Plans work much like a Roth 401(k) or Roth IRA by investing your after-tax contributions in mutual funds or similar investments. The 529 college savings plan offers several investment options from which to choose. The 529 plan account will go up or down in value based on the performance of the investment options. You can see how each 529 plan's investment options are performing by reviewing our quarterly 529 plan performance rankings.

Prepaid Tuition Plans let you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges. The Private College 529 Plan is a separate prepaid plan for private colleges, sponsored by more than 250 private colleges.

Educational institutions can offer a prepaid tuition plan but not a college savings plan.