Fans of The Motley Fool can't help but be aware that it's practically impossible for Wall Street pundits and writers to communicate without some obscure terminology slipping into the mix. It's not their fault, of course. The purpose of specialized argot in any arena is to provide folks with shorthand so they don't have to keep repeating long phrases to describe things like "employer-sponsored, tax-advantaged investment accounts whose funds are intended only to be withdrawn in retirement." So much easier just to say "401(k)."

But if you want to play the game, you have to comprehend the conversation, so in this week's Rule Breaker Investing podcast, Motley Fool co-founder David Gardner is bringing in a trio of special Foolish guests to explain six terms that investors might not know as well as they think they do or as well as they'd like to. In this first segment, Robert Brokamp sits down to talk about what 529 Savings Plans are, the benefits and drawbacks, and some details to understand before you open one for your kids.

A full transcript follows the video.

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This video was recorded on Feb. 21, 2018.

David Gardner: What is term No. 1 this week?

Robert Brokamp: Term No. 1 is "529 savings plan. " It's a term some folks probably heard. It's named after a section of the tax code, an exciting way to name your various things. It's sponsored by states, but usually run, or at least co-run by a financial services firm. It's usually meant for saving for college, but there's a new twist that we'll get to in a second.

You don't have to participate in your own state's plan, but if you do, you might be able to get some sort of a benefit. Thirty-five states offer a tax deduction on the state income tax return if you participate in your state's plan, so that's definitely the first place to look if you're interested.

The great benefit of a 529 savings plan is that the money grows tax-free as long as you use it for qualified higher education expenses, meaning college, but thanks to the new tax law that was just passed, up to $10,000 can be taken out for qualified elementary or secondary school expenses tax-free. A lot of people are very excited about this.

One thing we should note, though, is that the new tax law just said you can do that in terms of federal free taxes. Not all the states are onboard, yet, with this, so before you take money out to pay for elementary or secondary school, check with your state to see what the tax status of that is going to be.

Gardner: And when I check with my state, am I just basically googling my state's name and "529 savings plan?"

Brokamp: Yes. Really, the best resource for information about 529s is a website called They're pretty good at updating the rules, but you definitely want to google your state treatment of 529 savings plans. Do it as Google News, because then you'll get the most recent article on that.

Gardner: And Robert, is 529 something that you put into play with your own family?

Brokamp: Yes. Each of my kids has a 529 savings plan, and now that I have three kids who are teenagers, we're getting to the point where I'm going to have to tap these accounts...

Gardner: It's becoming all too real.

Brokamp: It is becoming all too real, and there's a whole art to that in terms of how you invest it.

One of the potential drawbacks of a 529 savings plan is that when you participate in a plan, it's sort of like your 401(k) at work in that you only can choose from among a selection of mutual funds. You cannot invest in individual stocks in a 529 savings plan, which I know is disappointing for a lot of Motley Fool listeners. For those who really want to pick individual stocks, I would suggest that you consider the Coverdell Education Savings Account. It's got a much lower contribution on that. Only $2,000 where you...

Gardner: Are you previewing your more advanced term later? Is Coverdell coming back, Robert?

Brokamp: Well, no. I think the Coverdell is a good supplement, because you can do both. The good thing about 529 savings plans is they virtually have no contribution limits. You can pretty much put in as much as you need to pay for a kid's college savings.

Gardner: All right. Robert, would you use that term in a sentence?

Brokamp: Yes, and here it is. "If as soon as your child is born you open up a 529 savings plan, contribute $200 a month, and earn 8% a year, the account will be worth approximately $100,000 by the time your kid turns 18."

Gardner: Robert, I was thinking you would bring a silly sentence, but that one was pretty straightforward and educational.

Brokamp: Well, it's very surprising for such a thing to come from me, but yeah.