529 Plan — Education Savings
A 529 plan is a U.S. education savings account intended to fund qualified education costs. Contributions are generally after‑tax, but growth can be tax‑free when used for eligible expenses. Some states also provide tax deductions/credits for contributions.
The core idea (in plain English)
You invest money for education. If you use it on qualified education expenses, withdrawals (including growth) can be tax‑free at the federal level. States may have additional benefits and rules.
Ownership and control
- The account owner controls withdrawals.
- The beneficiary is the student.
- Many plans allow changing beneficiaries to another eligible family member (subject to rules).
If one child receives a scholarship and doesn’t need all funds, you can often change the beneficiary to another eligible family member so the account remains useful.
Tradeoffs and pitfalls
- Non-qualified withdrawals can make the earnings portion taxable and may add penalties.
- State tax benefits can have recapture rules.
- Overfunding can be a risk if education plans change.
If you have a clear education goal and want potential tax-free growth, a 529 is often the default education savings vehicle — especially if your state offers a tax benefit.
Educational only. Always confirm eligibility, limits, and plan rules with IRS guidance or plan documents.