Overview: Tax deferred education accounts, also known as 529 plans, are tax deferred savings accounts that individuals use to pay for tuition, books, administrative fees and other college expenses. There are two types of tax deferred education accounts:
Account owners do not pay federal taxes on the earnings in the account, and distributions for tuition payments are not taxed. If the funds are spent on something other than educational expenses, that money may be subject to income taxes and a 10 percent federal tax penalty.
Author: Tracy Morley, SPHR, Legal Editor
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HR guidance on understanding tax deferred education accounts.