If you know how a Roth IRA works, then you have a pretty good idea of how a 529 plan works. You make your contributions with after-tax dollars and if everything works right you end up pulling out all of your account growth totally tax-free. In order to take advantage of the tax benefit, your child or other account beneficiary must eventually enroll in a college or university and incur qualified expenses. Qualified expenses include things like tuition, books, supplies and room and board. For example, if you invest $5,000 and it grows to $10,000, you can withdraw your account tax-free in any year as long as your beneficiary incurs at least $10,000 of qualified expenses. If it turns out that you need to withdraw your money from a 529 plan and the account beneficiary does not have sufficient qualified expenses, you will owe tax on your gains, along with a 10 percent tax penalty.