And they can only be used for tuition and fees, not for additional costs like books, supplies, and room & board. So they may be limited to public in-state schools. To start, these plans are usually sponsored by state governments. There are limitations to the prepaid tuition plan model, which may make this a less appealing choice for some. And they have the same tax-free growth and withdrawals as a college savings plan. Once you’ve purchased your units, the plan administrator will invest those funds so they continue to grow in the intervening years. With the rapidly increasing costs of education, this can be a great way to save on future school expenses! But you buy them at today’s rates, instead of the rates at the time the student attends school. With this type of account, you buy “units” or “credits” to be applied to college tuition later. With a prepaid tuition plan, you can do just that: pay for college tuition in advance. That means that online students studying culinary arts, plant-based culinary arts, or baking and pastry at Escoffier can pay for their laptops, internet access, and ingredients for their assignments with their 529 funds! Check with your specific plan for more guidelines on what is included. When it’s time to go to school, the money in a 529 plan can be spent on “qualified education expenses.” That may include tuition and fees, books and materials, room and board, and supplies-when they’re a required expense of participating in class. These amounts vary from state to state, so check with your state’s tax authority. You may also qualify for a state tax deduction based on your contributions. And when you withdraw the funds to use for qualified educational expenses, you don’t have to pay any income taxes on that money. So as the account grows, you do not have to pay additional taxes on those earnings. But the growth on those contributions is tax-deferred. That means that these contributions come from income after any federal or state taxes are deducted. It can even be used for student loan repayments.Ĭontributions to a 529 college savings plan are made with after-tax dollars.

This type of account can be used for any eligible, accredited post-secondary institution, including a two-year or four-year college or vocational school.

The most common type of 529 plan is a college savings plan. There are two primary types of 529 plans: college savings plans and prepaid tuition plans. This is usually a parent or grandparent, but it doesn’t have to be. This could include the cost of college or university, vocational school, apprenticeship programs, K-12 education, and student loan repayments.Ī 529 plan can be started by the beneficiary (aka the future student) or it can be started by a family member or friend on behalf of the beneficiary. A 529 plan is an investment account specifically designated for education expenses.

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