Introduction to 529 College Plans

A 529 plan is a tax-advantaged savings plan designed to help families save for the future education expenses of their children.  529 plans are named after Section 529 of the Internal Revenue Code, which created these plans.

529 plans, sponsored by states, educational institutions, and other organizations, are managed by financial institutions. There are two types of 529 plans: prepaid tuition plans and college savings plans. Prepaid tuition plans often have residency requirements and are sponsored by states.

Prepaid tuition plans allow families to pre-purchase college credits at today's prices, and the credits can be used at any participating college or university in the future. College savings plans, on the other hand, allow families to save money in an investment account, and the funds can be used to pay for the beneficiary's future education expenses, such as tuition, fees, books, and room and board.

529 plans offer several tax advantages, including tax-free investment growth and tax-free withdrawals for qualified education expenses. Some states also offer tax deductions or credits for contributions to 529 plans.

Families can open a 529 plan for a beneficiary (ie the future college student) and make contributions to the plan at any time. The beneficiary can use the 529 plan funds to pay for their qualified education expenses when they are ready to go to college.

In evaluating 529 plans it's important to understand the fee structure of the provider as well as consider how assets held in the 529 plan impact your financial aid eligibility.