What is a 529 College Plan?

Formula on BlackboardIf you have decided to save for college and invest in your children’s or grandchildren’s future. A 529 college plan can be an excellent way to save and invest for future college expenses. This guide to a 529 college plan will help you to learn some things that you need to know to help make a decision if a 529 college plan is right for you.

What is a 529 College Plan?

Congress created 529 college plans in 1996 to encourage and help families to save and invest in their children’s and grandchildren’s college education. 529 college plans are offered by states, universities, and colleges. A 529 college plan also offers some tax incentives to make saving for college more cost effective.

What are the Two Types of 529 College Plans?

The two types of 529 college plans are savings plans and prepaid tuition plans.

How Does a 529 College Savings Plan Work?

529 college savings plans are state sponsored plans that help you to save and invest for your family’s college education. 529 savings plans are typically invested into mutual funds. So your savings in a 529 college savings plan are based on underlying investments and market performance.

You can opt for an age based allocation option to ensure that your investment will be secure long term. An age based allocation option allows investments to become more conservative as your children or grandchildren get older and are getting ready for college.

How Does a 529 College Prepaid Tuition Plan Work?

A 529 college prepaid tuition plan lets families buy tuition credits in today’s dollars and prices. The benefit of this plan is that you don’t have to worry about the unknowns of how much college will cost in the future due to inflation because you have already paid for tuition at the rates of today to be used in the future. You can purchase a prepaid tuition plan through a college, university, or a state sponsored program.

What are the Tax Advantages of a 529 College Plan?

Contributions to a 529 college plan aren’t deductable from your federal income tax, but some states offer tax deductions for the contributions you make to a 529 college plan. In addition, when you give the funds to your children or grandchildren to use for college expenses the funds are exempt from federal income tax.

Is a 529 College Plan Right For My Family?

It’s best to talk to a financial advisor to help you decide if a 529 college plan is right for your family. A financial advisor can also help you to find the best 529 college plan for you.

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