The recent uproar over President Barack Obama's proposal to tax college savings plans outraged many American families who intend to use these accounts to help them pay for the rising cost of college. The controversy was deemed such a "distraction" that the administration dropped the idea altogether.
That's great news for the millions of families who have chosen these vehicles to save for college, in large part, because of the ability to withdraw funds from a 529 plan tax-free for higher-education expenses.
There are two types of 529 plans: college savings plans work like a 401(k) or individual retirement account (IRA) by investing contributions in mutual funds. Separately, prepaid plans let you pay all or part of the costs of college costs in advance.