There are many ways to save for your child’s future college education, but 529 college savings plans have become a core strategy for many families. The proof? There are 15 million 529 accounts in existence, with more than $438 billion saved within them, according to the latest tally by the College Savings Plan Network (CSPN).

May 29—nationally recognized as 529 College Savings Day—is an annual reminder of the importance of getting a head start on funding long-term education goals. So, we’re reviewing the key facts you need to know about these popular accounts. Read on to learn how 529 plans work and how to select a plan that best fits your family’s goals.

Types of 529 plans

There are two types of 529s, and they share some similarities and have notable differences.

529 college savings plans. These state-sponsored savings plans let families sock away money for a future student’s education in a dedicated investment account that comes with money-saving tax advantages. Here are a few things to know:

• Anyone can open a 529 and anyone can contribute to it, too, including grandparents, beneficiaries and extended family and friends.
• Currently, 49 states (Wyoming is the exception) and the District of Columbia offer 529s.
• Most plans offer one or more age-based portfolios, which gradually shift from aggressive to conservative investments as a child gets closer to college age.

Prepaid tuition 529 plans. Compared with traditional 529s, prepaid plans are less popular and only offered by a limited number of states . These plans allow residents to buy college tuition in advance—locking in today’s prices for future use. Here are some key details:

• Prepaid plans share the same tax advantages as 529 savings plans and are open to residents of the state offering the plan
• Prepaids come in different flavors, but most are designed so that chunks of tuition (in years, semesters, credits or units) are purchased in a lump sum or through installments
• The money is pooled, and the plan’s manager makes long-range investments so that earnings meet or exceed future college tuition hikes. Then, when a child is ready to attend college, the plan transfers money directly to the school to cover tuition

Tax benefits and rules

Although contributions aren’t tax-deductible, money invested in 529 plans gets a double tax perk: your savings grow tax free and are withdrawn tax free when spent on eligible expenses. Contributions aren’t reported on your federal income tax return, and 529s have no income or annual contribution limits.

In addition to the federal tax savings, many states offer a full or partial tax deduction or tax credit for 529 plan contributions. Your home state may even offer other benefits and incentives, such as financial aid or scholarship opportunities, if you invest in its 529 plan.

Be aware: If 529 funds are withdrawn for non-qualified education expenses, the earnings will be subject to income tax and an additional 10% penalty.

How the funds can be used

People often assume that 529 funds can only apply toward college tuition—and nothing else. The truth is, recent rule changes have significantly boosted the spending flexibility of 529s, and they now cover a wide range of eligible expenses. Here’s a shortlist that may surprise you:

• Tuition and fees at universities, community colleges, trade schools and U.S.-managed study abroad programs
• Room and board, on- and off-campus—as long as a student is enrolled at least half-time and the amount doesn’t exceed the college’s housing allowance
• Books and supplies
• Computers, laptops, printers, educational software and internet service
• Certain apprenticeship program expenses
• Student loan debt (up to $10,000 for repaying loans—a lifetime limit)
• Up to $10,000 in K-12 school tuition per year, per beneficiary

And here’s another plus: Some useful portability options are baked right into 529 plans. Say a child ends up not using the money for college. You can change the account beneficiary at any time to another member of the same originating family—such as a sibling, a first cousin or even yourself. There’s also no age limit for spending 529 funds.

How to choose the right one

If evaluating all the 529 plan choices feels like a daunting task, it may be helpful to focus on three aspects:

State perks. You’re not required to pick your home state’s 529 plan; in fact, you may choose any state’s plan and use the funds at any accredited college. But because your home state may offer a tax benefit and other incentives for opening an account that outweighs others, it may pay to study your state’s plan first. To compare your home state’s plan to others, try the  CSPN’s Search and Comparison tool.

Performance. The growth potential of your 529 contributions will depend on the success of the underlying investments within the plan. How can you compare the effectiveness of the many fund options found in 529 plans? Independent resource Saving for College analyzes investment performance for thousands of 529 portfolios and ranks 529 plans from best to worst over one-year, three-year, five-year and 10-year timeframes.

Fees. 529 plans may collect enrollment fees and management fees—both of which can chip away at your investment returns. So, it’s worthwhile to examine these costs before signing up. Generally, advisor-sold plans (which are offered through financial planners and brokers) tend to charge higher fees, while direct-sold plans (in which you enroll yourself) typically charge lower fees.

529 plan alternatives

Saving for college is a big goal that often requires a mix of personal savings strategies and financial aid options. To maximize your funding opportunities, you may want to expand your options beyond a 529 plan. Check out our recent blog post, “ 8 Ways to Pay for College,” to learn about alternative possibilities.

Stretching your college savings dollars

The flexibility and tax advantages of 529 savings plans make them one of the most popular strategies to help fund the future costs of higher education. But not every 529 plan is created equal. Understanding the facts and carefully comparing the features will help you identify if a 529 plan can be a valuable investment for your family.