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California 529 Plan


A 1997 law that created education IRAs also allowed state-run college savings plans to be exempt from federal taxes. These saving plans are sometimes referred to as 529 plans, after the section of the IRS code in which they are defined. A number of states have been introducing college savings plans throughout the 1990s, but they started to really take off with the federal tax clarification. Currently 22 states offer these plans and more are on the drawing board.

The 529 plans are similar to prepaid tuition plans in that you use them to prepay your child's tuition, either through a lump sum payment or regular installment contributions. But they are more flexible because you can use them for more than just tuition, plus you may have more control over the investment philosophy.

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