A 529 plan is a tax-advantaged way to save and invest for higher education expenses at colleges, graduate schools, community colleges and certain technical or vocational schools. It is named after Section 529 of the Internal Revenue Code, which establishes and regulates these plans. 529 college savings accounts have a number of tax-efficient benefits. Investments in a 529 plan account grow federal income tax-deferred and can be withdrawn federal income tax free when the funds are used to pay for qualified higher education expenses. Families can also fund a 529 plan using up to 5 years of gift-tax exemptions (currently $70,000 or $140,000 for married couples filing a joint return) at once to maximize the value of compound growth. Some states also provide state income tax deductions or credits for 529 plan contributions.
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