A 529 Plan is the most commonly used type of college savings plan. It is a tax-advantaged investment account designed to help families save for future college costs and other qualified educational expenses on behalf of a designated beneficiary. Think of 529 plans as mutual fund investment accounts with a unique tax structure. The account owner has significant control over the investments in the account, and there are no federal income tax implications on the growth of the asset.

The key benefits of a 529 Plan are that the account owner can use the money for qualified college expenses without incurring federal income tax on any of the withdrawals. These expenses include tuition and fees, room and board, books, supplies, computers, and software. Additionally, some states provide additional tax benefits to residents who contribute to the plan, such as a state income tax deduction or a credit.

To open a 529 Plan, you typically need to select a state’s offering or a broker-sold plan. State-run plans offer a range of investment choices and may provide additional tax benefits. Broker-sold plans also offer a number of investment options and sometimes come with lower fees. Regardless of which option you choose, you don’t need to be an expert investor to manage the plan: Most plans offer target-date funds that do the investing for you.

It’s important to consider the costs associated with a 529 Plan. The fees may include administrative fees, annual fees, and expense ratios, which cover operating costs related to investments. These fees can vary significantly from one plan to another, so take the time to review and compare fees before making a decision.

529 Plans, when used as part of a college savings strategy, can help minimize the amount of borrowing necessary to cover future college costs. But keep in mind that, like any other investment, a 529 Plan carries risk, and its value will be determined by how well the investments perform. For best results, only use the money saved in a 529 Plan for its intended purpose: college or other qualified educational expenses.