Eligibility

• Anyone can open a 529 account and name anyone as a beneficiary. You can open up as many 529 plans as you like, for however many people you like. You can name a child, grandchild, niece or nephew, or a friend as beneficiary. You can even name yourself as a beneficiary. There are no income limits to 529 eligibility.
  
  

Types of 529 Plans

• These plans come in two main varieties: Prepaid tuition plans--which enable savers to lock in today's college tuition costs, insulating themselves from the effects of tuition inflation over time--and savings plans, which work similarly to 401ks: You contribute money into an annuity or mutual fund, and your results are tied to the investment performance of the funds.
  
  

Taxation

• In addition to tax-deductible contributions, tax-free growth and tax-free withdrawals for the education-related expenses, a 529 plan also offers the following tax benefits: It gets money out of the estate, meaning any assets contributed to a 529 plan naming someone else as beneficiary will not be subject to the estate tax starting in 2011; state residents may qualify for tax deductions or tax credits for contributing to their state's Section 529 plan.
  
  

Considerations

• Contributions to 529 plans are subject to the federal gift tax, and in some situations may be subject to the federal generation-skipping transfer tax as well. Also, parent-owned 529 plans are considered to be parental assets for Section 529 planning--a change from years prior to 2009, when the government considered 529 assets to be student assets. When computing a families expected contribution to college expenses, the government assumes parents can afford 5.64 percent of their assets to spend on school. If the student owns the assets, the government calculates an expected family contribution on student assets of 20 percent.
  
  

Purchasing

• You can purchase 529 plans either directly from the fund companies themselves, or you can go through a broker. If you go through a broker or financial adviser, you may pay a commission on invested assets. But you may get valuable advice for that fee. You don't have to limit yourself to your state's program; you can purchase a 529 plan from any state. Your state may offer income tax incentives or matching funds for low-income family contributions, however. State plans vary widely. You can find detailed information for each state's 529 plans on their own state web sites.