Saving for Education with 529 Plans - An Overview

For more than 30 years, investment professional Allison Clago has worked to help individuals and business clients meet their financial goals. In her role as managing director of investments with Wedbush Securities, her areas of focus include asset allocation, investment analysis, and retirement planning. Allison Clago also has experience with college funding options such as 529 plans, savings accounts that come with tax advantages that make it easier for families to save for college or K-12 education costs. 

Created by the US Congress over two decades ago, 529 plans take their name from Section 529 of the Internal Revenue Code, which authorizes this type of educational savings arrangement. They are legally known as “qualified tuition programs.”

Although 529 plans can vary from state to state, they all fall into one of two broad categories: prepaid or savings plans. Prepaid tuition plans are state-sponsored plans offered through qualified educational institutions, and most have residency requirements that apply to the person saving the money and/or his or her beneficiary. In contrast, 529 savings plans operate in much the same way as other investment vehicles to generate funds that can typically be used for education costs in any state. 

In most cases, parents set up a 529 plan for their child, but anyone can start a 529 to help cover future education costs for a beneficiary of their choosing, including themselves. In addition to tuition and fees, money from a 529 plan can generally be used to pay for room and board, books, and other costs at an eligible educational institution. As of 2018, eligible institutions include public, private, or religious K-12 schools, as well as colleges, universities, and vocational schools.