What Is a 529 Plan?

A 529 plan is a college savings account that's exempt from federal taxes. The plans were introduced in 1996 to help taxpayers salt away college expenses for a designated beneficiary.

These plans, named for Section 529 of the federal tax code, often have tax benefits at the state level for in-state residents. This only applies to states that have an income tax. In many cases, if the maximum deduction is surpassed in a calendar year, the deduction can roll over into subsequent years. However, each state enforces a specific total contribution limit. As of 2014, these limits are generally between $300,000 and $400,000.

Any U.S. citizen or resident alien at least 18 years or older can open a 529 account. Usually, the beneficiary is a child, grandchild or younger relative. However, an adult can also open a 529 plan to save for his or her own higher education costs; there are no age limits.