The 529 plan is a fine option from a tax perspective. Your investment is not tax deductible, but it does grow tax deferred. Distributions for educational expenses come out tax free, adding further benefit. Your state may, in some cases, offer further tax benefits in the form of state income tax deductions. Significant contributions can be made free of gift taxes, and 529 accounts are not included in estate taxes. Concerned family members may appreciate the ability to gift funds without losing control of the funds. The tax benefits for 529 accounts have been made permanent, so if you are concerned about long term savings, this is a safe and reasonable option to meet your family's educational needs.

Another advantage to a 529 account is the ability to withdraw funds if they are needed for reasons other than educational expenses. The 529 account is owned by the donor, not the recipient, so you will retain control of the funds in the account. The total contribution limits on 529 plans are quite generous, and if you are considering going back to school yourself, you can even set up a plan for yourself. A 529 plan is also a better alternative than accounts in the child's name for financial aid purposes.

If you expect your child to attend a specific school, or one of a specific group of schools, one possible configuration of a 529 plan allows you to prepay tuition expenses. This can be ideal if a state university is the most likely option, and typically the plan can be transferred, occasionally with some losses, to another state or school. Some experts recommend avoiding the prepaid tuition option as some states are reneging on the plan with rising tuition costs.

Once you have set up a 529 account, it is basically self managing. You can automate your deposits, and do not have to micromanage the funds. Typically you can alter your investment strategy once per year if you choose. If you prefer to conscientiously manage your investments, you may be able to get a higher return on an alternative account, even without tax advantages. This is only true if you have the skills and time to carefully manage your investment. In many cases the stability and tax benefits of a 529 plan can offer you a higher final return on your money.

While there are a number of ways to save for your child's education, a 529 plan offers many benefits, ranging from tax free withdrawals to convenience and ease. There are many free 529 plans available, making this an easy account to open for your child. Parents and grandparents may appreciate that they retain control of the funds, and access to them if they are needed. If you are starting to save for your child or grandchild's education, consider a 529 plan for safe and secure savings.