Saving for school? Check out the updated 529 plan

Now that your teens are heading back to school this fall, it's a good time to start planning for their higher education. That means you may be interested in a Section 529 plan account that provides tax-favored savings.

And if you have younger children you'll be happy to know that a recent tax law change has opened up Section 529 plans to kids attending elementary and secondary schools.

Here's what you need to know about 529 plans

Section 529 plans are sponsored by individual states, state agencies or educational institutions. There are two basic types:

1. Prepaid tuition plans: You acquire units or credits used toward future education at current prices. So you end up locking in tomorrow's education costs today.
2. Education savings plans: The plan invests in a portfolio for each participant's account. Investment earnings vary and are then used to pay education costs.

With either type of plan, if you fund an account for a beneficiary (like your child or a grandchild), there's no current tax due on the earnings within the account. And when the beneficiary finally enters school, payments for qualified expenses are exempt from tax. The list of qualified expenses includes:

• Tuition and fees
• Books
• Supplies and equipment
• Reasonable costs of room and board

Your younger children may now benefit

Beginning in 2018, the tax breaks for 529 plans are extended to tuition payments for grades K-12 at public, private or religious schools. For example, if you send your child to a prestigious college prep school, you can tap into the Section 529 account to pay for the tuition - with no tax consequences.

However, there is a limit for these younger kids. Plan contributions can only be used for up to $10,000 in school expenses annually.

It's helpful to note that you can roll over unused 529 plan funds for a beneficiary to an account for another beneficiary. This might benefit families who have one child completing college and another in high school.

Call us if you have questions about 529 plans and how you can save with other education savings accounts and tax credits.