In 2002, 529 savings plans became exempt from federal taxes. These savings plans are combinations of stock-based investments and bond-based investments. Over time, they can accrue a fair amount of money, which makes them a great way to save for college and earn interest on your savings in the process. Once those earnings were no longer taxed on a federal level, the market for them has exploded into a multi-million dollar business.
However, while these plans sound like a great idea, they can be a bit tricky. In order to understand exactly what you are getting into – and make sure it is right for your budget – you need to understand exactly how the plans work. Understanding how they were created and where they are based is an important part of making a 529 plan work for you.