This is a type of savings plan that offers unique tax benefits, such as investment returns that are allowed to grow free from federal (and often state) income tax. Three types of this account exist: education savings plans (sometimes called college savings plans), prepaid tuition plans, and ABLE accounts.

Although the federal government first created the concept behind 529 plans, each state administers its own 529 program, so the details vary by location. In most cases, anyone in the U.S. can sign up for whichever 529 plan they want, not just those available from their home state, though many states offer tax breaks to residents who invest in their plan.

The funds in a 529 plan can grow significantly over time, but they can only be used to cover certain costs (“qualified distributions”). Depending on the type of plan, these distributions could be limited to only tuition and fees or could include expenses like room and board or even books and computers. With the passage of the Tax Cuts and Jobs Act of 2017, some 529 plans can also be used to pay for private elementary or secondary education as well as things like apprenticeships or trade school.