How 529 Plans Work

Benefit: Account Control

Unlike custodial accounts or Education Savings Accounts (ESAs, formerly Education IRAs), the beneficiary doesn't gain control of the money at a specific age (usually 18 or 21 for those types of accounts). The account owner always has control of the money. You don't have to worry that your child will grow up and spend the money frivolously.

There are no restrictions on who can open an account for whom. You can open an account for your child, a friend's child, a relative, the paper boy, or even yourself. 529 plans have no age restrictions either, so an adult could open one to pay for some classes next year.

If it turns out that the beneficiary won't be using the money in the 529, there's a lot of flexibility in how you can ultimately use the money. You can change the beneficiary, or you can roll the funds over into a different qualified investment product. There may be additional fees, depending on what you choose, and some account changes are limited to once per year.

You can withdraw the money for non-education purposes if absolutely necessary, but you'll have to pay the tax on the earnings, plus a 10 percent federal tax penalty.