By Dustin Weeden

Today is 529 College Savings Day.

College savings plans, frequently called 529 plans because they are regulated by section 529 of the Internal Revenue code, are tax-advantaged investment plans that help families save for future college expenses. Much like individual retirement accounts, investments in 529 plans grow free from federal taxes as long as funds are withdrawn for qualifying education expenses.

In addition to the federal tax benefits, 30 states offer an income tax deduction while three states offer a tax credit for contributions made to state sponsored 529 plans. One of the criticisms of college savings plans is that wealthy families with more disposable income are the primary beneficiaries of the tax benefits.

To  counter this development and to create an incentive for low-income families to save for future college expenses, 12 states have created grant programs that match contributions to 529 plans.

As published tuition prices have outpaced inflation by a 4 to 1 margin in the last 15 years, families have begun saving more for college. Assets in 529 plans have grown rapidly. In 2000, a little more than $9 billion was invested in 529 plans. By the end of 2013, more than $227 billion was invested in 529 plans.

Source: College Savings Plan Network


For additional details on tax benefits and recent legislative trends regarding college savings plans, visit NCSL’s Saving for College: 529 Plans website.

Dustin Weeden is a policy specialist in NCSL's Education Program.

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