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Finance Dictionary and Glossary of Investment Terms
Section 529 plan
A state-sponsored program designed to help parents finance education expenses. Section 529 plans are administered by certain investment companies and subject to contribution requirements and investment guidelines. Withdrawals from the account are taxed at the child's tax rate, and anyone can contribute to a Section 529 plan, regardless of their income level. In most cases, the money is invested in a portfolio of stocks, bonds, or mutual funds. Most states offer Section 529 plans. The proceeds can be used only for education withdrawals for non-educational purposes trigger taxes and a 10% penalty. The investment company administering the account will be in control of how the money is invested, and will charge an ongoing free for its services.