A 529 plan is a tax-advantaged investment vehicle that is usually sponsored through state agencies or states themselves for the purpose of encouraging saving for future education. They can be used to cover expenses at accredited colleges and universities and can also be used for tuition at both public and private elementary schools and secondary schools as well as some apprenticeship programs. Additionally, they can be used to pay for principal interest on qualified educational loans.
For qualified college expenses, there is no cap in a 529 plan. For tuition for K-12 institutions, the annual cap is $10,000. Apprenticeship programs and loan payments carry a lifetime cap of $10,000 dollars per beneficiary.
There are no income restrictions with 529 plans. Additionally, contributions can be claimed for the annual federal gift tax exclusion, up to $15,000.
Unlike some investment plans, a 529 plan investment is tax-deferred and withdrawals aren't subject to federal taxes as long as they're qualified. In many cases, they are also not subject to state taxes. With 529 plans, assets belong to the account owner, so the account owner has the freedom to change who the beneficiary is at any time. Additionally, they can decide when and how much to withdraw and the for what the withdrawn funds can be used.
