What makes the 529 Plan an exceptional way to save for your child’s future college expenses is its tax-deferred status. This status allows your contributions to grow tax-deferred as long as they remain in the account. Any withdrawal made for qualified higher educational expenses¹ at an eligible institution are also Federal tax-free.²  This graph shows the difference from a regular taxable account and an account that is allowed to grow tax-free.

1 – Qualified expenses are defined by the Internal Revenue Code.
2 - This provision will expire after 12/31/10, unless extended by Congress.

 
This example assumes contributions of $500 per month, a hypothetical 8% nominal rate of return compounded monthly with an effective return of 8.30%, and a 27% tax bracket for the taxable account. The return is shown for illustrative purposes only and is not intended to predict the return of any one investment, which will fluctuate. Regular investing does not ensure a profit or protect against loss in a declining market. Withdrawals of earnings not used for qualified higher education expenses are taxed at the recipient’s rate and are subject to a federal 10% additional tax that must be separately reported and paid to the IRS.