It’s never too late to save for your children’s education. Even if your child is a teenager, save as much money as you can until they are ready to attend college. One way to save is with a 529 college savings plan.
A 529 college savings plan is an investment plan that puts money aside for higher education, and can offset the amount needed in the form of college student loans. 529 plans offer a tax advantage to parents and other relatives that want to help a child go to college. All fifty states and the District of Columbia have their own 529 plan. To find out the requirements for the savings plan in your state, visit their website.
There are two types of 529 plans. Pre-paid tuition plans let parents purchase tuition credits based on what the going rate is today and the plan pays out when the student goes to college. The benefit is that the plan pays out at the future cost. Pre-paid tuition plans are offered in eighteen states and are administered either by the state or a participating college or university. Some pre-paid plans have stipulations that involve requirements for residency of either the student or the plan initiator.
Pre-paid tuition plans cover just that – tuition. Room and board and other fees still need to be financed in order for the student to go to college. If purchased from a college, the student has no other choice but to attend that school for the duration of time that the tuition was pre-paid.
Savings plans are different from pre-paid plans. Savings plans use investment options to maximize the money that you put into them. How fast and how much the account grows is directly related to how the market is doing.
Anyone can open a 529 plan for a student. Grandparents can begin a plan for their grandkids. Parents can start one for their children. If the students are quickly approaching college age, investment option can be designed to carry more risk to maximize the investment.
The savings 529 plan can be used to cover all educational needs, not just tuition. Students can use the savings plan to attend any school that they are accepted to whether in or out of state. Parents and relatives can contribute as much as $200,000 or more in these plans. Any money that is not used by one student can be rolled over into a plan for another beneficiary without incurring a fee.
The money in this plan is not backed by the state. Since this is an investment vehicle, money is subject to the fluctuations in the market. The plan does not max out at a certain age like with pre-paid tuition plans. The money can be used for undergraduate and graduate school. Best of all, money can be contributed to the plan at any time during the year.
Each 529 plan may charge fees back to the originator. Pre-paid plans may charge administrative, enrollment, and broker fees. College savings plans could charge enrollment fees, maintenance fees, and other management fees since the account is an investment account. Broker fees can possibly be avoided if the savings plan is purchased directly from the plan sponsor. Before investing in a savings plan or a pre-paid tuition plan read the literature on the plan for the state to find out what they typically charge.
529 plans offer distinct advantages to the families of the student. All of the money in the account is put in on a tax-free basis. The monthly contributions are not steep; some are as low as $15 a month. As stated before, any money in the plan can be moved from one plan to another if there is money that will not be used by the first student.
Money in a 529 plan can be subject to tax if it is used for something other than education. As long as the funds are used for qualified educational expenses, the money can be used without any taxes being levied. Also the money contributed to this plan is safe from seizure during bankruptcy proceedings.
Learn about: Prepaid College Tuition Plans >>>
