Before you open an account, get the facts on this tax-advantaged education savings option.

A 529 plan is an education savings plan sponsored by a state or state agency. Savings can be used for tuition, books, and other education-related expenses at most accredited two- and four-year colleges and universities, U.S. vocational-technical schools, and eligible foreign institutions. Savings may also be used for tuition expenses at eligible public, private, and religious primary and secondary educational institutions (K-12). U.S. residents of any state, who are 18 years of age or older (or the age of majority in some states), may invest in most state plans.

Any earnings grow federal income tax deferred and may also be eligible for state tax deductions. Distributions for qualified education expenses are federal income tax free.

People of all income levels; there are no income restrictions. Any U.S. resident who is 18 years or older, has a U.S. mailing and legal address, and a Social Security number or Tax ID.

Anyone who has a Social Security number or Tax ID.

A future college student of any age—the beneficiary can even be the same person who sets up the account.

Grandparents or others who wish to contribute to a child’s education savings plan may want to open a 529 plan account. The owner of the account, also known as the participant, controls the account, including investment decisions and the distribution of assets. The account owner can take advantage of possible gift and estate tax benefits.

Grandparents, other relatives, or nonrelatives can also gift to an existing account. In fact, account owners can enroll in our free College Gifting program that provides a page for family and friends to easily contribute a gift electronically; plus a separate, private dashboard where the account owner can make edits, send invitations, track gifts, and more.

Contribute up to $75,000 ($150,000 per married couple) per beneficiary in a single year without the money being subject to the federal gift tax.* Once assets are in the account, they are generally considered to be no longer part of the account owner’s estate.

The account owner maintains ownership of the account until the money is withdrawn. Withdrawals from a 529 account can be taken at any time for any reason. However, if the money is not used for qualified education expenses, any earnings are subject to federal income taxes at the recipient’s rate. A 10% federal penalty tax and possibly state or local tax are also added.

If the beneficiary receives a scholarship or attends a U.S. military academy, the scholarship amount or cost of attendance can be withdrawn from the 529 plan account and the 10% federal penalty tax does not apply. However, the earnings are subject to any other applicable taxes, including federal income tax.

* An accelerated transfer to a 529 plan (for a given beneficiary) of $75,000 (or $150,000 combined for spouses who gift split) will not result in federal transfer tax or use of any portion of the applicable federal transfer tax exemption and/or credit amounts if no further annual exclusion gifts and/or generation-skipping transfers to the same beneficiary are made over the five-year period and if the transfer is reported as a series of five equal annual transfers on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. If the donor dies within the five-year period, a portion of the transferred amount will be included in the donor’s estate for estate tax purposes.