A 529 plan is a tax-advantaged college savings program designed to help make it easier to save for the future higher education of a beneficiary, such as a child or grandchild. It is named after Section 529 of the Internal Revenue Code 26 (USC). If used for qualified education higher expenses, all withdrawals from a 529 plan are free from federal tax.

 

General facts about 529 plans:

  • 529 plans offer certain federal tax and some state tax benefits. tax benefits

  • Almost every State offers a 529 plan.

  • Assets in a 529 plan may be used for qualified higher education expenses. These include tuition, fees, and books, supplies and equipment required for attendance or enrollment; certain room & board costs; and certain special needs expenses.

  • Any U.S. taxpayer can open a 529 plan for a U.S. Citizen or Resident Alien, including themselves

  • For most 529 plans, Account owners do not need to live in the state sponsoring their 529 plan, since most do not have state residency requirements. The beneficiary of an account can attend any accredited institution in the U.S. or abroad.

  • 501(c)(3) non-profits can open 529 plans for scholarship or similar programs.

  • Family and friends can contribute to an existing 529 plan account, although friends and family may not always receive tax benefits for contributing to accounts for which they are not the account owner.

  • If the beneficiary does not go to a post-secondary institution you can change the beneficiary penalty free. To avoid taxes and penalties, your new beneficiary must be a member of the family of your original beneficiary. Certain restrictions apply. Please consult your tax advisor and the applicable 529 plan disclosure documents for more detailed information regarding a change in beneficiary.

  • U.S. Savings Bond owners generally may redeem bonds purchased after 1989 tax-free and deposit the proceeds in a 529 plan. IRS restrictions apply. Please see the IRS Tax Benefits for Education for current income limitations, or call 1-800-888-2723 for more information.
 

Did You Know? 

Residents of all 50 States are able to save in any of the three programs managed by College Savings Bank—Arizona Family College Savings Program (AFCSP), Montana Family Education Savings Program’s (MFESP) and CollegeChoice 529 Direct Savings Plan. Plus, we make it simple to Make a Gift to an account.

 

Check out these additional FACTS about the 529 Plans we manage:


A comparison of the ways people save for college:


Benefits 529 College Savings Plans1 Coverdell Education Savings Accounts2 UGMA/UTMA Taxable Investments Savings Accounts
Federal Income Tax-Free Savings Yes Yes No No No
Federal Income Tax-Free Qualified Withdrawals Yes Yes  No No No
Possible State Tax-Free Benefits Yes Yes No No No
High or No Contribution Limit Yes No Yes Yes Yes
No Income Restrictions Yes No Yes Yes Yes
Plan Owner Retains Control of Account Yes Yes No Yes Yes
Ability to Change Beneficiary Yes Yes No Yes Yes

 

  1. Tax benefits are conditioned on meeting certain requirements. Federal income tax, a 10% federal tax penalty, and state income tax and penalties may apply to nonqualified withdrawals of earnings. See the applicable plan disclosure documents for more complete information.
  2. Additional information regarding the Coverdell Education Savings Account is available in IRS Publication 970, Tax Benefits for Education, available from any District Office of the Internal Revenue Service; or by calling the Internal Revenue Service Tax Forms Distribution Center toll-free, (800) 829-3676; or by visiting the IRS website at www.irs.gov..