529 College Savings Plan

An investment method with tax benefits that is held exclusively for future college expenses including tuition, housing, and books. A 529 College Savings Plan refers to an educational account that is established to help save long-term for a child’s college education. These plans, which are tax-deferred, allow parents and eligible family members to set aside funds each month to defray the costs of higher education. Each state operates its own 529 program and creates its own rules about how the funds can be used. In some cases, 529 plans are specific to only the child’s state of residence, while others indicate that the funds can be used at any higher education institution nationwide.

Savings Plans vs. Prepaid Plans

A 529 Savings Plan works in a similar way as a 401K or other retirement account. Parents set aside a certain amount of money each month which is allowed to grow, with interest, over time. These plans offer several investment vehicles, and you are allowed to choose the one you feel is best for your family. Your savings will either increase or decrease according to your investment options.

Prepaid Plans

These plans allow you to prepay the tuition for in-state colleges and universities and lock in current tuition costs for future use. There are ways to convert your plan if your child choose a private college or out of state college instead and there are also plans available that will allow you to prepay the cost of private universities.

Enrolling in a 529 Plan

Most states have 529 enrollment information available online, and will allow you to set them up via their websites. You can also set them up with your financial adviser.