529 College savings plans offer a real, tax-advantaged opportunity to sock away cash for future college expenses. And, better yet, many states offer deductions for some or all of the funds contributed each year. The basic rule: money invested in a 529 program grows tax-free and withdrawals remain tax-free as long as they are used for higher-education expenses at qualified. postsecondary institutions. Non-qualified withdrawals may be subject to federal taxes and penalties, plus state and local income taxes.

There’s no age limit on who can use the money in the account. And, if the named beneficiary of the account decides not to attend college, the money can be passed on to the youngster’s sibling, parent, niece, nephew or other eligible family member. And as long as the money is used for qualified higher-education expenses, there are no taxes or penalties on the transfer of funds.

The existence of a 529 account has little effect on a child’s qualification for student aid. If the owner is a parent, the effect is relatively minor, because the account is not the child’s asset. If the 529 is owned by a grandparent, it’s not factored in at all, though distributions may be reportable as student income.

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