529 Tax Friendly Savings PlanYou don't get a tax deduction for putting money into a 529 plan, but taxes are deferred on the earnings until you withdraw the money. If the money is used to pay qualifying higher education expenses --- such as tuition, books, room and board --- the earnings are taxed at the student's tax rate. That can be a big saving, because college students usually are in a lower tax bracket than their parents, said Abram Claude, a vice president with Fidelity. In general, the programs work like this: Anyone --- such as a parent or grandparent --- can set up an account for a child. Anyone can contribute to the plan. Each state sets its own rules on how much can be contributed, either annually or over a lifetime. These vary widely, from a lifetime limit of about $ 175,000 in Montana to a $ 2,000-a-year limit in Iowa. Other states base the cap on an estimate of how much it would cost to attend a state institution. |












