529 Plan

Named for Section 529 of the tax code, these plans are the main tax shelter for college money. Anyone can open one for any beneficiary, most states let you use any state’s plan, and over 30 states sweeten their own with a state income tax deduction or credit for contributions. Growth is never taxed as long as withdrawals pay qualified education costs; non-qualified withdrawals owe income tax plus a 10 percent penalty on the earnings portion only.

The flexibility is better than its reputation. Unused money can move to another family member, wait for graduate school, repay up to $10,000 of student loans, or, under SECURE 2.0, roll up to $35,000 lifetime into the beneficiary’s Roth IRA once the account is 15 years old (annual IRA limits still apply). Project a balance against a real college bill in the 529 college savings calculator.