What Is A National 529 Plan?
- Author Jeremy Smith
- Published July 12, 2011
- Word count 412
National 529 plans are savings plans for college and are named after a tax code. They offer parents a way to save money for their child's education by either prepaying tuition or saving it in an interest earning account. Each of the fifty states, plus the District of Columbia, offer at least one type for the residents of the state. There are two types of 529s; a prepaid tuition plan and a regular college savings plan. Many states allow non-residents to open a college savings plan in their state, but for tax and scholarship purposes, most people are better off choosing 529 plans from their home state.
Prepaid Tuition
This option locks in tuition, at eligible colleges and universities, at the current rates and the money that is put into the account is only good for tuition and mandatory fees. Parents can purchase these plans by making a lump sum payment and then monthly payments, based on the age of the child. It offers the benefit of being backed by the state, so it is a safe investment. Unfortunately, most states do not allow non-residents to enroll. There is also a limited enrollment period each year.
College Savings Plan
With this 529 option, parents are not locking in prepaid tuition, but rather just saving their money in investments such as index funds and mutual funds which grow tax free for the duration of the account. This plan is open to children and adults and the money can be used on tuition, room and board, books and fees associated with their college education. Adults can use it to go back to school to pursue a higher degree. Its benefits are that enrollment is open year round, and unused money can be passed onto siblings. The downside of this plan is that there is no guarantee of return on the investments. There is no residency requirement but there are limits to the amount of money that can be put into the 529 savings plan.
Before investing in either of these plans, consider the pros and cons for both as well as the ages of the children who will be the beneficiaries. With the college tuition raising, on average, eight percent annually, a prepaid set-up may a good choice. This is also the choice for families with just one child. The college savings plan is good for families with more than one child since any left over money from the first child can be passed down to the others.
Author is a freelance journalist who is passionate about saving money for college when shopping online and writes about finding a 529 savings plan, for more information please visit http://shop.upromise.com/.
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