Education Planning And 529 Plans
529 plans are flexible savings accounts offering unique tax advantages, minimizing the effect on financial aid. 529 plans are managed by state and/or educational organizations, and are created to assist families to save money for college education and K-12 education costs.
A History of 529 Plans
In 1996 the IRS added Section 529 with legislation establishing “qualified tuition programs” giving state programs their tax-deferred status. Monies allocated in these programs are not taxed by the federal government when spent on “qualified higher education expenses”. This includes up to $10,000 in K-12 tuition.
Saving for College
A 529 plans can handle the expenses of qualified college education. Most 529 plans give you a selection of schooling which is doesn’t change based on which state your 529 savings plan originates.
Does My State Offer Any 529 Plans?
Most states currently have one or more 529 plans available. Each state decides if it would like to have 529 plans and what the particulars are, these plans vary from state to state.
Provided the plan establishes some simple required features, tax law will provide you certain tax benefits as the plan participant. Many states do offer incentives to certain types of investors also.
Two Different Kinds of 529 Plans Exist
529 plans are classified into “Prepaid” or “Savings Plans”.
Savings plans have similarity to a 401K, or an IRA, because your money is allocated into mutual funds. The Savings Plan offers you some investment choices to choose from. Your financial account will increase or decrease in value based on the option you chose.
Prepaid Plans will enable you to pay the expenses of a college education in your state. You can often convert them for usage at private colleges or colleges that are out of state. “The Private College 529 Plan” was distinctly created as a prepaid plan for private colleges.
Educational institutions offer 529 Prepaid Plans but not 529 Savings Plans.