For millions of families, paying for higher education is a huge challenge that consumes much of the early life span of an adolescent. From cradle to college, parents are concerned about financing their child’s future education. While the question of how you’ll pay for college is sometimes vexing, there is an avenue that more and more people have taken in order to secure their young ones’ futures: 529 college plans. Many parents are discovering that saving for college 529 programs may be the way to go if you want to sock away the money that may be needed if their children are going to fund their education.
These plans get their name from their origin, section 529 of the Internal Revenue Code. These plans typically come in two versions. Savings plans allow you to invest money into an account which will grow based on how the market is doing and how the individual investments are performing. However, if you should decide that you want to ensure that there is money already there, you might wish to look to the prepaid option, which is available in 15 states. This alternative lets account holders place a set amount into an account, locking in credits toward tuition at current rates. This ensures that there’s money already set aside and you won’t be concerned with inflated costs later.
While states alone are allowed to dole out 529 savings plans, the prepaid plans can also be administered by institutions of higher learning. Currently, the only states to not offer any 529s are Tennessee, Wyoming, and Washington.
Saving through 529 plans can provide many benefits over other college savings options. There are certain contributions that earn deductions from state taxes, and any principal earned from the growth of investments is non-taxable, as well. Also, with these college plans, someone else handles the management for you; you can be as hands-off as you’d like – while still making the final decisions on how your money is invested. You can even roll plans over to other states if you want, so long as it’s done only once in a 12-month period.
Of course, there are some tax penalties to consider with 529s, and it’s possible such plans can hinder financial aid assistance – so check to make sure those things don’t conflict before deciding on a plan.
These are some of the many benefits (and pitfalls) of saving for college 529 programs. The decision to start checking out plans is up to you.
