529 plan

A 529 plan is a state-run account that helps you save for education. The IRS says earnings are not subject to federal tax, and generally not state tax, when used for qualified education expenses such as tuition, fees, books and room and board. Contributions are not deductible on your federal return.

Who can use it. The IRS says anyone can open a plan and name anyone as beneficiary, with no income limits. You can change the beneficiary to another family member without tax. Qualified costs include up to $10,000 a year of tuition at an elementary or secondary school.

Gift tax link. The IRS notes gift tax consequences may arise if contributions plus other gifts to one beneficiary pass $19,000 in a year. A special rule exists in the Form 709 instructions.

A round example. For example, a grandparent contributes $10,000 for a grandchild. The money grows and later pays college tuition. These numbers are for illustration only.

Why it matters to your plan. A 529 can fit a plan to help children and grandchildren while keeping giving goals clear. See our trust and estate planning page.