A 529 plan—legally a “qualified tuition program”—is a savings plan operated by a state or an eligible educational institution to help people save for a designated beneficiary’s education costs. It offers tax advantages: earnings are not subject to federal tax, and generally not to state tax, when used for qualified education expenses such as tuition, fees, books, and room and board at an eligible school. Contributions to a 529 plan are not deductible for federal income tax. Plans come in two basic types, prepaid tuition plans and education savings plans, and each state sponsors its own options.
