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Revision as of 04:02, 1 March 2005 by Aranel (talk | contribs) (not really a stub)(diff) ← Previous revision | Latest revision (diff) | Newer revision → (diff)A 529 plan is a savings plan in the United States designed to give tax advantages to encourage families to saving for future higher education expenses. It is named after section 529 of the Internal Revenue Code. 529 plans are run by state boards or the organizations they delegate the administration of the plan to.
With the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), 529 plans gained their current prominence, flexibility, and tax advantages. Previously plans falling under section 529 were limited to state pre-paid tuition plans. After EGTRRA, distributions from 529 plans for qualified higher education expenses at a qualified institution are exempt from income tax. The act also allowed the creation plans with a number of investment options, funded by guaranteed accounts and stock or bond mutual fund like options.
Advantages
- All money grows federal and state income-tax free
- All distributions for qualified higher education expenses are federal income-tax free
- Many states also exempt withdrawals from state income-tax for qualified higher education expenses
- Money can be used virtually everwhere -- over 8,000 schools in the U.S. and over 800 foreign schools
- Money can be used to pay for tuition, room, board, books, fees, supplies and required equipment
The income tax advantages have contributed significantly to their popularity as a college savings tool.