Named after a the specific IRS code that permits their use, Section 529 plans are one of several options to consider for saving towards an individual's future college education costs. There are two types of plan offered under Section 529: savings accounts and prepaid tuition. The savings account allows for after-tax contributions to be made for a designated beneficiary (not limited to children). The contributions grow tax-deferred and potentially withdrawn tax-free for qualified educational expenses.
The biggest tax benefit of the 529 plan is that is allows for tax-deferred accumulation and tax-free withdrawals. Unfortunately, there is no Federal tax deduction for putting money into a 529. All contributions are made with after-tax money and do not lower what you may owe the IRS. Fortunately, for those with state sponsored 529 plans, your contribution count as an income tax deduction. It is important to compare your state's 529 plan before choosing an outside 529.
Section 529 plan have the most flexible eligibility rules of any college savings vehicle. Basically, anyone can open and contribute to a 529 plan on behalf of anyone else. There are no age, income, or relationship requirements to the 529 plan.
The only contribution limits are "lifetime limits" which are set by each state. The lifetime limits can range from mid $100,000 to over $300,000 in certain states. The lifetime limit is meant to keep this account's balance relatively realistic in regards to the actual use of the account.
*Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing