529 college savings plans offer a unique combination of features that no other college savings vehicle can match.
Federal tax advantage. Contributions to your account are post-tax but then grow tax-deferred, and earnings are tax-free if you use the money to pay the beneficiary’s qualified education expenses. (The earnings portion of any withdrawal not used for college expenses is taxed at the recipient’s rate and is subject to a 10% penalty.)
State tax advantages. Many states offer income tax incentives for state residents, such as a tax deduction for contributions or a tax exemption for qualified withdrawals.
High contribution limits. Most plans permit contributions of over $300,000 over the life of the plan.
Unlimited participation. Anyone at least 18 years old with a valid Social Security number can open a 529 college savings plan account, regardless of income level.
Professional money management. College savings plans are offered by states, but they are managed by designated financial companies that are responsible for managing the plan's underlying investment portfolios.
Flexibility. Under most plans, you're entitled to change the beneficiary of your account to a qualified family member. You may roll over the money in your 529 plan account to a different 529 plan once per year without income tax or penalty implications.
Wide use of funds. You can use the money in a 529 college savings plan at any college in the United States or abroad that is accredited by the Department of Education and, depending on the individual plan, you can use the money for graduate school.
Accelerated gifting. 529 plans offer an excellent estate planning advantage in the form of accelerated gifting. This can be a favorable way for grandparents to contribute to their grandchildren's education.