529 plans (named after the section of the tax code that deals with them), offer certain tax advantages to parents (and other relatives) to save for their children’s college education. 529s are sponsored by states and some educational institutions. The benefits of these plans include control of the asset by an adult, tax deferred growth and, if used for post-secondary education, the funds withdrawn are tax free.
By investing in a 529 Plan outside of the state in which you pay taxes, you may lose tax benefits offered by the state’s plan. Withdrawals used for qualified expenses are federally tax-free. Tax treatment at the state level may vary.