What Is A 529 Plan?

529 Savings Plan

A 529 savings plan is a way for funding a college education in the future. They are very similar to an IRA or 401k , where you contribute money that is invested in mutual funds or similar type investments. 509 plans are managed by the State or college. A 529 savings plan is named after the section 529 IRS tax code and offer tax advantages for funding future college educations

Savings Plan and Prepaid Tuition Plan

There are two basic types of 529 plans, prepaid plans and savings plans. Prepaid 529 plans allow you to pay beforehand on all or some of the costs of a college education in advance. Savings plan type 529 plans give you options to invest in mutual funds and other similar type investments within the plan.

529 plan are an attractive way to save for future college educations because the savings or investments have tax deduction qualities at the state level. As the 529 grows it is tax deferred and that makes it a strategic way to save for college.The 529 savings plans can used for the college student's tuition, expenses directly related to college and even for room and board in most cases. As of late, a college student can use the funds from a 529 plan to purchase a computer or most computer related equipment, which is all a non taxable distribution of the funds of a 529 plan.

529 college savings plans are just like any other investment plan and have benefits and inherent risks like any other investment plan. The 529 does have many attractive tax benefits and are a great way to save for a college education. If you acquire a 529 plan you are in control of the plan and are considered the custodian of the plan. You decide who the beneficiary of the 529 plan will be. You can also change who the beneficiary of the 529 plan is, without the loss of the tax benefits.

For more information about a 529 plan and if it could be right for you, click here.