The purpose of the 529 Plan is to provide a savings vehicle for a college education. These funds can be used at any accredited college or university. Some of benefits include the ability to change beneficiaries, and current, federal tax exemption for withdraws to pay for college.

The 529 Plan makes saving for college a manageable chore. You can contribute on a monthly, quarterly, or annual basis, depending on whose plan you chose. The 529 Plan does not limit which states, you can use these funds. However choosing your state sponsored plan may provide assurance, that you will not owe state income tax on distributions.

Needs for college funding can change from time to time. What if your son or daughter gets a scholarship to go to college, and will not need any of the funds from the 529 Plan? You should not be worried, especially if you have another person in mind, that may need the assets in the plan. At anytime, you may change the beneficiary of the plan to another person. There is no tax penalty for switching beneficiaries.

As of this moment, distributions from the 529 Plan are not federally taxable, but some states might. This is advantageous to parents, because the money grows on a tax deferred basis, and comes out the plan tax free, at the federal level. This is unlike a CD or savings account, in which interest is currently taxable.

The 529 Plan has its strengths. It allows you to contribute money to save for a college education. The federal government allows it to grow tax deferred, and currently does not tax qualified distributions from the plan.

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