Which statement about a 529 plan is accurate?

Which statement about a 529 plan is accurate?

• A. It is a government grant
• B. It is a tax-advantaged education savings plan
• C. It requires immediate repayment with high interest
• D. It can only be used after graduation

Answer: (B)

A 529 plan is a tax-advantaged education savings plan. The key idea is to set aside money specifically for education and let it grow with favorable tax treatment. Earnings typically grow free of federal taxes, and withdrawals used for qualified education expenses are not taxed. Many states also offer their own tax breaks for contributions. It is not a government grant, not a loan that must be repaid with interest, and it’s not restricted to use only after graduation—the funds can be used for a wide range of education costs while the account owner retains control. If money is taken out for non-qualified expenses, taxes and penalties can apply to the earnings.

A 529 plan is a tax-advantaged education savings plan. The key idea is to set aside money specifically for education and let it grow with favorable tax treatment. Earnings typically grow free of federal taxes, and withdrawals used for qualified education expenses are not taxed. Many states also offer their own tax breaks for contributions. It is not a government grant, not a loan that must be repaid with interest, and it’s not restricted to use only after graduation—the funds can be used for a wide range of education costs while the account owner retains control. If money is taken out for non-qualified expenses, taxes and penalties can apply to the earnings.