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What is a 529 college savings plan?
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A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as "qualified tuition plans," are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
How does a college savings plan work?
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529 plans are usually categorized as either prepaid or savings plans. SavingsPlans work much like a 401K or IRA by investing your contributions in mutual fundsor similar investments. The plan will offer you several investment options from which to choose
How much can one contribute to a 529 plan?
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Total 529 plan contribution limits are set by the states and can be as high as $380,000. However, to avoid gift tax consequences, federal law allows single taxpayers to contribute up to $14,000 in one year or make a lump-sum contribution of $70,000 to cover five years