What is the primary benefit of a 529 plan?

The primary benefit of a 529 plan lies in its tax advantages for educational savings. A 529 plan is a specialized savings account designed to help families save for future education costs. The earnings on the money invested in a 529 plan grow tax-free, and withdrawals used for qualified education expenses—such as tuition, fees, books, and room and board—are also tax-free at the federal level. Additionally, many states offer tax deductions or credits for contributions made to a 529 plan, providing further financial incentives for savers.

This combination of tax-free growth and tax-free withdrawals significantly enhances the value of a 529 plan compared to other savings vehicles, making it a powerful tool for families aiming to minimize the financial burden of educational expenses.