What is a 529 college saving plan

A 529 college saving plan is a type of investment plan that is set up for a parent or grandparent to help save money for their beneficiary. When a person takes out money from a 529 college saving plan for the qualified expenses for education the money will be free of federal income tax. And there are some states that will offer tax-deferred growth as well as tax-free withdrawls on 529 college saving plan when the money is taken out for higher education expenses that qualify.

Different types

There is more than one type of 529 college saving plan. One of the 529 college saving plans is prepaid tuition. This type of 529 college saving plan is available to people in 13 different states. If a person chooses to use this type of 529 college saving plan they let a person prepay the beneficiary's tuition at the current rate and then when the beneficiary goes to college the tuition will be paid out at the current cost of their tuition.

The other type of 529 college saving plan is the savings plan. This plan is different than a regular savings account because a person's 529 college savings plan's earnings are based on the performance of certain mutual fund investments. Most of the states offer this type of 529 college savings plan.

The 529 college savings plan can vary with age-based investment options. These different investment options make it so that the investments will become more and more conservative as the future college student gets closer to going to college. Of course there are also different risk-based investment options. These options allow for the investments not to change no matter the age of the beneficiary.

This 529 college savings plan option may also offer a person an option that guarantees their principal will be safe while their investment grows.

Advantages of a 529 college saving plan

One of the biggest advantages of a 529 college savings plan is the tax advantage that was previously mentioned. But there are other advantages to the 529 college savings plan as well. Many states offer different benefits and have other features that can make a 529 college savings plan a great way for a person to save for college.

For example, the monthly contributions that a person has to make to a 529 college savings plan are pretty low. Sometimes the limit is as low as $15 a month. This makes it easier for a variety of income levels to participate in this college savings program. Another great perk is that the beneficiary can change to another family member. And the money from a 529 college savings plan can be used for school tuition, room and board, books, fees, and other supplies required for college.

It is also pretty easy for a person to make payments to a 529 college savings plan. They can pay using payroll deduction or have automatic transfers from one of their bank accounts. And the money that is in a 529 college savings plan is protected from bankruptcy.