A piggy bank wearing a mortarboard.

Memorial Day is fast approaching. But if you're a parent of a college-bound kid, there’s another May holiday you should know about: May 29, 529 College Savings Plan Day, aka 529 Day.

There aren't parades to celebrate the occasion. But 529 Day is a great time to review your college savings progress. Plus, your state plan may be offering deals and incentives for contributions to 529 investment accounts, such as awards for newborns or matching grants. 

For example, Tennessee residents who open a TNStars 529 account during the month of May get a $25 match and a chance to win tickets to local attractions like Dollywood and the Memphis Zoo. Oregon is awarding five prizes of $529 in an Oregon College Savings Plan account. (Register by May 29.)

Gimmicks aside, a 529 is one of the best ways to save money for college.

“If you aren’t putting money in a 529 plan for your kids, you should get started right away,” says a financial aid expert, Mark Kantrowitz, president of Cerebly and publisher of Private Student Loans Guru. “It’s absolutely the most tax-advantaged way to save for college.”

More on paying for college

Nearly every state offers a 529 plan, and some offer more than one. You get big tax breaks on the money saved if you spend it on qualified college costs. And thanks to the tax cuts signed into law at the end of last year, some states now may allow you to use money saved in a 529 account to pay for elementary and secondary school expenses.

Even so, these accounts are an underused savings option. Just 29 percent of Americans say they know what a 529 plan is and only 13 percent are using one to pay for college, according to a survey by the financial services firm Edward Jones. 

To help you get started, here's a quick intro to 529s:

Key 529 Advantages

Major tax breaks. Money in a 529 plan can be withdrawn free of federal and state taxes as long as it’s used for qualified higher-education expenses. That can include tuition, fees, books, computers, and services for special-needs students. (For more details, see IRS Form 970.)

State tax breaks may sweeten the deal if your state offers one. (More than 30 do.) But the value of these deductions varies. Rhode Island allows deductions of up to $500 per beneficiary per year for single filers ($1,000 for married couples filing jointly). Oklahoma offers up to a $10,000 deduction on contributions for singles ($20,000 for a married couple filing jointly). 

Under the Tax Cut and Jobs Act, 529 money can also be spent on K-12 expenses, and up to $10,000 can be used free from taxes. Be aware that not every state will recognize elementary and secondary school expenses as qualified education costs, so check with your plan sponsor to find out what is covered in the plan you choose.

What if your child doesn't need the money or doesn't go to college? You can change the beneficiary to a sibling or other family member or even yourself. Or you can simply withdraw the money, which will be taxed at the beneficiary’s rate, and you’ll pay a 10 percent penalty on earnings growth.

Favorable financial aid treatment. If the 529 account is owned by a parent or a dependent student, only a maximum 5.64 percent of the assets will be counted toward the expected family contribution under the federal aid formula. And distributions will not be counted at all for financial aid purposes.

If the account is owned by grandparents or someone else, the assets aren’t counted against the expected family contribution. But the distributions to pay for college expenses are considered student income, so up to half of that amount will be used to calculate eligibility for student aid.

Either way, these savings are hugely valuable because almost 40 percent of federal financial aid comes in the form of loans, which must be repaid with interest. “Each dollar saved in a 529 can save $2 in future student debt,” Kantrowitz says. 

Ease of investing. Much like 401(k) retirement plans, 529s let you automatically invest in your choice of stock and bond funds. A popular option is an all-in-one age-based fund, which gives you a well-diversified portfolio that shifts to safer fixed-income assets as your child nears high school graduation.

Choosing a Plan

You don’t have to save in your own state’s plan; most 529s are open nationwide. But it’s worth checking out your home state offerings first because you may get a significant deduction on your contributions. 

When comparing plans, look closely at the fees because low costs will allow you to keep more of your returns. The bargains are typically found among 529s that favor low-cost index funds, such as Ohio’s College Advantage plan, with fees on age-based funds of 0.04 to 0.11 percent, and Utah’s My529 plan, 0.020 to 0.038 percent. (To compare 529 plans, go to savingforcollege.com.)