Did you miss the last holiday in May? Friday, May 29th (5/29) was “529 Day,” referencing 529 college savings plans. If you are asking what a 529 Plan is, you are not alone.  A recent Forbes article discussing the so-called holiday reported two-thirds of Americans are unfamiliar with 529 Plans.

A 529 Plan is a type of savings account that allows tax-free growth of the plan (like an IRA) and avoid taxes completely if the funds are used to pay qualified expenses of higher education, such as tuition, fees, books, or room and board.  Like many accounts or plans that are tax-centered, the plan is named after Section 529 of the Internal Revenue Code. (A recent post on the tax blog covered 529A Plans, a similar savings vehicle to benefit disabled individuals.)

The plans are state sponsored, meaning each state has its own plans.  Each state's plan is generally open to all individuals (plans are not limited only to residents of that state), though there may be specific benefits for using a particular state's plan over another state's plan.  Some states (including Iowa) allow a deduction or credit on state taxes for contributions by taxpayers in that state. 529 Plans are most commonly established by parents or grandparents, though any individual can open the account for a beneficiary (it is not restricted to just family).  The plans are also a good tool for third party giving, allowing friends and family members to also contribute to an existing account. The creator of the account (called the participant in Iowa) determines how the assets are invested and names the beneficiary of the account (the individual that will use the funds).  In Iowa, if a beneficiary does not attend college, or does not need the funds, the participant can transfer the account to a member of the beneficiary’s family, a group rather broadly defined by the plan to include siblings, descendants, or cousins of the originally named beneficiary.

For anyone reading this on Sunday night (5/31/15), today is the last day to enter the College Savings Iowa contest to win a $5,290 account. More information, including official rules, is available on the College Savings Iowa Giveaways website. Even if you missed the giveaway, you can still create a 529 Plan in Iowa or any other state.