First of all, 529 plans can pay for undergraduate or graduate school, technical or trade schools, even cooking schools or golf schools, to cover qualified expenses such as room and board, books, fees, or essential items such as computers. Accredited schools include any postsecondary college, university, or vocational institution eligible to participate in student-aid programs administered by the U.S. Department of Education.
Second, you can choose any state's 529 plan. Every state sponsors a 529 program. You are not restricted to using your home state's plan, which enables you to shop for the plan that you feel has the best fee structures or fund options. Consider, however, that you may be eligible for a state tax deduction if you choose the plan offered by the state where you live. Pennsylvania offers such a deduction.
Visit the Tax Benefits for Education Information Center at the IRS website ( www.irs.gov) for Publication 970, Tax Benefits for Education, which can be downloaded there or ordered by calling 800-TAX-FORM (800-829-3676).
Third, 529 plans are useful in estate planning for parents and grandparents. Five years' worth of gift-giving - up to $140,000 - can be front-loaded into a 529 account and given to a beneficiary tax-free, provided no other gift is given over the same time. You can open multiple accounts in multiple states and are not required to consolidate or combine them.
Finally, a 529 plan can last for generations, Brett said. There is no expiration date on 529 accounts and no requirement that the money in them be spent by a particular time. So any extra assets in an account can be passed to other beneficiaries or generations. In essence, the account can become a multigenerational family trust.