A “529” education savings plan is a tax-favored program operated by a state designed to help families save for future education costs. While the fees, expenses and features of these plans will vary from state to state, as long as a plan satisfies the requirements of Section 529 of the Internal Revenue Code, federal tax law provides tax benefits for both the contributor and the beneficiary.
Education savings plan
- A tax-advantaged account to save for education.
- Earnings accumulate tax deferred.
- Does not guarantee admission.
- If a beneficiary does not use funds, a new beneficiary can be designated.
Tax-free withdrawals - Withdrawals for education
- Withdrawals for qualified expenses are generally tax-free.
- Qualified expenses generally include tuition, books, fees, supplies, equipment and room and board.
Taxable withdrawals - Non-qualified
- Any part of a withdrawal that is not applied to a qualified expense is considered non-qualified.
- The earnings portion of non-qualified amounts is taxable and a 10% penalty is generally applied.