The ABCs of 529 Plans

529 plans are tax-advantaged education savings vehicles and one of the most popular ways to save for education today. Much like the way 401(k) plans revolutionized the world of retirement savings a few decades ago, 529 plans have changed the world of education savings.

An overview of 529 plans

Congress created 529 plans in 1996 in a piece of legislation that had little to do with college — the Small Business Job Protection Act. Known officially as qualified tuition programs, or QTPs, under federal law, 529 plans get their more common name from section 529 of the Internal Revenue Code, which governs their existence.

Over the years, 529 plans have been modified by various pieces of legislation. The most recent change was in 2017 in the Tax Cuts and Jobs Act, which expanded the definition of a 529 plan "qualified education expense" to include K-12 tuition, up to $10,000 per year.

529 plans are governed by federal law but run by states through designated financial institutions who manage and administer specific plans. There are actually two types of 529 plans — savings plans and prepaid tuition plans. The tax advantages of each are the same, but the account features are very different. 529 savings plans are far more common.

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