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Written by 529guru
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Saturday, 04 September 2010 01:55 |
What is a 529 Education Savings Plan?
This tax advantaged savings plan is designed to encourage people to save for a higher education. It gets its name, the 529, from Section 529 of the Internal Revenue Service code. These education savings plans are legally known as qualified tuition plans and are sponsored by states, state agencies, and educational institutions authorized by the aforementioned Section 529.
529 plans may be slightly different from state to state. Most of these plans allow for investors from out of state, but those individuals who invest in 529 plans in their own state will often find a number of benefits from doing so, such as state tax advantages, scholarship opportunities, matching grants, and protection from creditors.
There are two different types of 529 plans. The first type is a prepaid tuition plan, and the second is the college savings plan. Every state in the Union, as well as the District of Columbia, sponsors at least one of the types of 529 savings plan. Some states have both types of plans available, and even some colleges offer a prepaid tuition plan. There are quite a few differences between the college savings plan and the pre-paid tuition plan.
For the prepaid tuition plans, people saving for college can purchase credits (or units depending on the college or university) from participating facilities. In certain cases, they are also allowed to save for room and board. They are able to purchase these credits at today’s rates, and the performance of this type of plan is based on inflation. It should be known that most of the prepaid tuition plans are state sponsored and do have residency requirements. Each state may have a different requirement for residency.
College savings plans are different. They allow the account holder to create an account for a student, or beneficiary, which will be attending college in the future. The purpose of the account is to pay for the students expenses while they are at school. The account holder can choose from several different options while they are considering the plan, including bond mutual funds, stock mutual funds, and money market funds. When the time comes to withdraw the money, the beneficiary can use the money at just about any college he or she chooses.
With the rising cost of schooling, investing in one of these plans seems like a very good idea for most parents who want to help their child save for a higher education. |
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Last Updated on Saturday, 04 September 2010 03:43 |
