A few more important facts about 529 college savings plans:
- Once a 529 plan is set up, the contributions are invested on behalf of the account holder through options like stock mutual funds, bond mutual funds and money market funds.
- There are no age limits on the beneficiaries of 529 plans, so both children and adults may utilize them.
- 529 contributions are not tax-deductible; however, the earnings from the 529 plan are not subject to federal tax as long as the withdrawals are used for eligible college expenses.
- If you withdraw money from a 529 plan and do not use it on eligible college expenses, you will be subject to income tax and an additional 10% penalty on the earnings.
- 529 balances may be transferred between beneficiaries as long as they are used for eligible college expenses.