What is the 529 College Plan?

List: Posted: 12/10/10

The 529 College Plan is one of the best ways you can save for your child’s college education. The 529 College Plan is a tax advantaged savings account just for college education expenses. It can be used for children or for adults continuing their education.

Many 529 College Plan types are run through individual states. Each state has its own plans with its own advantages and disadvantages. You can also get a 529 College Plan through an independent bank or lender. The state plans are often a good deal for state residents because they can come with lower fees, as well as state tax breaks.

Just about anyone can open a 529 College Plan, and you can open it with anyone as the beneficiary. You can be the administrator on an account that has your child as a beneficiary. Anyone can contribute to such an account, too, as long as total lifetime contributions don’t exceed around $300,000.

The 529 College Plan is tax advantaged in a couple of ways. It grows with tax-free interest. Also, if you withdraw the money only for college expenses, you don’t have to pay taxes on the interest at all. If the funds in the 529 College Plan aren’t used for college purposes, you have to pay taxes on the interest plus, sometimes, a penalty.

One good thing about the 529 College Plan is that you have control over where the funds are invested. Many plans offer a combination of options for different rates of growth. You can invest in mutual funds and different types of bonds, too. With the right investment choices, you can often get great returns on your 529 College Plan.

Financial Planning & Financial Planners

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