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529 Plan

Named after Section 529 of the Internal Revenue Code, 529 College Savings Plans are tax-advantaged savings/investment vehicles administered by state governments to help investors save for a child's college education.

Contributions to 529 plans grow tax-free, and the distributions are tax-free when they are used for qualified college expenses (including tuition, fees, books, and room and board if the student is at least a half-time student at the school). In over 30 states, investors can also get a state income tax deduction on their contributions (though most states that offer this benefit require investors to contribute to their own states' plan).

529 college-savings accounts are typically invested in mutual funds. Many plans offer age-based portfolios that are very heavy in equities when the beneficiary is younger and then slowly tilt to fixed income funds as the college date approaches. Account holders can also choose a fixed portfolio at whatever allocation they choose.

Some 529 plans are very robust in terms of the choices that they give to account holders; others are somewhat limited. There is also a range of fees involved. Morningstar analysts cover and rate the biggest 529 plans in the country.

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