(LifeWire) - Definition: Named after a section of the Internal Revenue Code, 529 plans are a way to save money for college, with tax breaks from the federal government and most states.
Each state offers its own version of the 529. There are two types: Pre-paid tuition plans, in which money is put away to cover costs at specific schools, and college savings plans, in which money is invested for use at any institution of higher education. In either case, contributions are not tax deductible, but investment growth and withdrawals are free of federal taxes as long as they are spent on approved college-related expenses. Earnings spent on anything but education are subject to a 10% penalty, plus tax.
