College savings plans or 529s, named after the Internal Revenue Code section, are designed so individuals can make after-tax deposits for future higher education expenses (tuition, fees, books, supplies, and equipment) at colleges, universities, vocational schools, or other post-secondary educational institutions. Typically administered by state Treasury Departments, 49 states and the District of Columbia now have 529 savings plans in operation. Though unique to each state, 529 savings plans may offer substantial tax benefits: (1) earnings on college savings plan withdrawals are free from federal income taxes; (2) most plans feature state tax-free withdrawals; (3) many plans offer annual state tax deductions; and (4) high-wealth individuals can to contribute up to $55,000 per beneficiary in a single year without federal gift-tax implications.
Project: College Success
Clancy, M., & Sherraden, M. (2003). The potential for inclusion in 529 savings plans: Report on a survey of states (CSD Report No. 03-25). St. Louis, MO: Washington University, Center for Social Development.