529-college-savings-plans Definition

Named for Section 529 of the Internal Revenue Service Code, College Savings Plans are qualified tuition programs designed to help parents save and invest to pay for their children’s college education. 529 plans are created by state or local governments to let parents pre-pay the cost of tuition at an in-state or municipal university. 529 plans are regulated just like municipal securities. A variety of investments can be chosen for 529 plans, with the money growing tax-deferred as long as funds are kept in the plan. Funds can be withdrawn to pay for qualified education expenses, such as tuition, dormitory fees, books, and supplies. The owner of the account can select the beneficiaries, and benefits can be transferred between one family member and another. The benefits apply regardless of the recipient’s age. The funds may be withdrawn if they aren’t needed for educational expenses, however, the withdrawn funds are subject to a tax and penalty.