529 College Savings Plans

529 College Savings Plan is a tax-advantaged investment account designed to help families save for future educational expenses. It is named after Section 529 of the Internal Revenue Code, which governs the plan.

As noted by the IRS, the primary benefit of a 529 plan is that it allows your savings to grow tax-free, and when used for qualified education expenses, withdrawals are also tax-free.

A 529 College Savings Plan works by allowing you to set aside money for future educational expenses in a tax-advantaged account. Here’s how it works:

• Open a 529 account. You can open the account for yourself (as the beneficiary), or for someone else (such as a child or grandchild).
• Contribute towards your account. There is no annual contribution limit, but each plan has a lifetime contribution limit, which can range from $300,000 to $500,000+, depending on the state.
• Invest the funds. Money in a 529 plan is usually invested in a range of options, including age-based portfolios or static portfolios.
• Withdraw funds for educational expenses. The account beneficiary can withdraw funds—tax-free—or qualified educational expenses.

Yes, 529 college savings accounts can earn interest over time, but not in the way traditional savings accounts earn interest. As explained by CNBC, the exact type of earnings depends on how the money is invested within the account.

Qualified expenses in which funds form 529 accounts can be used include tuition and fees, room and board, books, technology and equipment, K-12 tuition, and special needs services.

529 college savings plans do not have a fixed interest rate. See current 529 interest rates here.