529 plans are versatile savings accounts that offer federal, and sometimes state, tax benefits, while minimizing impact on financial aid. They are operated by a state or educational institution, and are designed to help families set aside funds for future college and K-12 education costs.
529 plan history
Section 529 was added to the Internal Revenue Code by a 1996 piece of legislation authorizing “qualified tuition programs”, giving state programs both their popular name and tax-deferred status. Funds invested in these programs are not taxed federally when used for “qualified higher education expenses”, the definition of which has been expanded in 2015 to include computers and in 2017 to include up to $10,000 in K-12 tuition.
State plans are OK for out of state colleges
529 Plans can be used to meet costs of qualified colleges nationwide. In most plans, your choice of school is not affected by the state your 529 savings plan is from. You can be a CA resident, invest in a VT plan and send your student to college in NC. Check to see if your institution is eligible under 529 rules.