First introduced in 1998, 529 college savings plans have grown to encompass over $100 billion in assets designated for college savings. 529 college savings plans are popular methods to save for college, and offer many tax benefits that make them attractive to savvy investors. Unfortunately, 529 college savings plans aren't foolproof; a downturn in the economy has just as much impact on these plans as other stock market investments, and renders them far more volatile than traditional savings accounts. Is a 529 plan right for you?
529 college savings plans vs. pre-paid tuition plans.
There are actually two types of 529 plans; college savings plans, and pre-paid tuition plans. 529 college savings plans are sponsored by the state and function much like a 401(k); you make contributions and choose how you want the funds invested, and let the money grow to save for college. 529 pre-paid tuition plans, on the other hand, involve pre-purchasing credits at a specific college or university for future attendance. For example, if you're an adult planning to go back to school, you could use 529 pre-paid tuition plans to purchase a few credits per year until you have enough credits to attend full-time, instead of going to evening classes periodically as you can afford them.
529 Tax benefits of 529 college savings plans.
Contributions to 529 college savings plans are not tax-deductable. However, earnings on 529 college savings plans are tax-deferred; you don't have to claim earnings until the year in which you make disbursements. If you use disbursements for qualified college-related expenses, you won't have to pay taxes on them at all except in a few states. Because you can let your college savings grow tax-free and make tax-free disbursements for college expenses, 529 college savings plans are some of the best tax shelters you can find for your college saving needs.
529 529 college savings plans may reduce your financial aid eligibility.
529 college savings plans are counted as an asset for the purposes of calculating financial aid eligibility. If you have an established 529 plan, you may not be eligible to receive need-based financial aid, and may have to resort to private loans to complete your college financing. Take this into consideration when you're considering 529 college savings plans.
529 Economic woes affect 529 college savings plans.
Many 529 college savings plans invest in mutual funds, which are not federally insured. Poor mutual fund performance can cause you to lose some or all of the money you invest in your 529 plan, leaving you with no reserve at all to finance an education. 529 college savings plans generally lock-in the funds, giving you the option to change your investments only once per year. If you withdraw money from 529 college savings plans prematurely to protect against economic losses, you'll face penalties and taxes for withdrawing the funds prematurely. You may want to consider more conservative 529 plan investments as the beneficiary nears college age in order to protect the savings.
 | If you're not already using 529 plans to save and invest for college, you're missing out on a great way to accumulate the money you'll need to finance tuition and other education expenses. |
 | You may want to open a 529 plan if you're a parent interested in saving money for your child's college expenses. A 529 plan helps you save for college while taking advantage of tax shelter laws. |
When you start saving for your child's education with a 529 Plan, you cannot predict what she will want to be when she grows up. Luckily, 529 Plans do not go to waste if your child chooses a path in life that doesn't involve a stop in college. |
Today is the first day of kindergarten, but before you know if, your precious one will be off to college. How do you plan to pay for it? Whether your child in an infant, in kindergarten, a preteen, or ready to graduate next spring, here are seven ways that you can help ease this financial burden. |
There's only one great way to save for college: with a 529 plan. This plan, named for the section of the Internal Revenue Code that created it, is a type of investment account. |
