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What is a 529 College Savings Plan?

January 13, 2022

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education 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.

Under these plans, you contribute after-tax money and your money grows tax-free, and all withdrawals are tax-free, when used for tuition, room and board, and other qualified higher education expenses.

There are two types of 529 plans: prepaid tuition plans and education savings plans:

  • College savings plan: You pick your investments and shoulder the investment risk. The value of your account is based on the performance of your investments. When it’s time for college, you have whatever money is in your account.
  • Prepaid Tuition Plan: You prepay for college tuition today for use in the future. The value of your account is guaranteed by the state to keep pace with resident undergraduate tuition and state-mandated fees at the most expensive Washington public university. The state picks the investments and assumes all the investment risks.

What can you spend a 529 College Savings Plan on?

Anything that is a “qualified expense.” Qualified expenses are education-related purchases that include:

  • Tuition
  • Fees and expenses
  • Room and board
  • Textbooks

What fees and expenses will I pay if I invest in a 529 plan?

Fees and expenses will vary based on the type of 529 plan. You should carefully review the plan’s offering circular to understand what fees are charged for the plan and each investment option.

Ready to learn more?

Get in touch with our Investments & Insurance Team to learn more about college savings, retirement planning, or any other financial goals you’re looking to achieve.