A 529 college or education savings plan is an investment account designated solely for education-related spending. The beneficiary of a 529 college savings plan can use the money to pay for a variety of college expenses permitted by federal law.

These savings plans are administered in all 50 states as well as the District of Columbia and were created under federal tax code Section 529 in 1996. Here are five things to know about this type of college savings plan.

1. Anyone Can Start One

Generally, parents or guardians open a 529 college savings plan for their child, the beneficiary, but an investment account of this kind can also be started by another relative or a family friend. A person can even start one for themselves if they choose. The UNest App can help you open and manage a 529 account right from your phone.

There can be only one beneficiary on a 529 savings plan.

2. They Are Tax-Advantaged

The money you grow in a 529 savings plan is tax-deferred and withdrawals are tax-free, as long as the funds are used strictly to pay for qualifying educational expenses. That means that no matter when you withdraw the money, it is not subject to federal or state taxes.

Additionally, the account holder might be able to use their contributions, considered gifts, for a tax break.

3. There Are Many Investment Options

The money invested in a 529 college savings account is often distributed amongst a collection of mutual funds, but there are several investment options to choose from. These include stock funds, bonds, money market accounts, and sometimes even CDs. Investments may be conservative or aggressive.

The account holder for a savings plan gets to decide how the assets are allocated across these options or they can choose an age-based—rather than static—portfolio option that automatically adjusts as the beneficiary gets older.

4. They Can Help Pay For Any Educational Expenses

The money in a 529 college savings plan doesn’t have to be used only for college—beneficiaries now have the option of using the money for K-12 private school expenses as well without incurring fees or being taxed.

And when you do tap this account to pay for college, the funds can be used to cover anything from room and board to tuition—even, since 2019, loan repayment.

5. There Are Contribution Caps and Minimums

Total contributions into a 529 college savings plan are limited and these caps vary by state. These can be anywhere from around $235,000 to $529,000, so check your state’s policies if you’re unsure. Annually, though, you can contribute as much as you want as long as you don’t exceed your state’s cap.

Many states also enforce initial, lump-sum, and additional contribution minimums. These are usually somewhere around $25 or $50 but how much you must pay and how often depends in part on the investment accounts in your plan.