What is a 529 College Savings Plan?

what is a 529 college savings planA 529 College Savings Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. A 529 plan encourages families to save for higher education expenses, and is an easy hands-off way to save for college. The plan is named after Section 529 of the Internal Revenue Code which created these types of savings plans back in 1996.

Money from a 529 college savings plan can be used toward tuition, fees, books, and supplies required at any accredited college, university, or vocational school in the United States. For most plans, your school choice is not affected by the state where you started the 529 college savings plan. For example, you can live in Massachusetts, invest in a 529 college savings plan in Vermont, and send your child to college in California.

Each state has at least one 529 college savings plan available. Plans will vary state to state, so make sure to research 529 college savings plan benefits and options before you invest. There are special tax benefits for having a 529 college savings plan. Some, but not all, states offer tax incentives to investors as well.

There are two main types of 529 plans:

  • SAVINGS PLANS work by investing your contributions in mutual funds or similar investments. The plan will offer you several investment options from which to choose. Your account will go up or down in value based on the performance of the particular option you select.
  • PREPAID PLANS work by letting you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges.

You can enroll in a 529 college savings plan through a 529 college savings plan manager directly, or through a financial advisor.

What are some ways that your family saves money for college? Comment & share below!