There are 2 types of 529 plans, prepaid and savings plans.

A prepaid plan will allow investors, or parents or grandparents to purchase tuition credits to be used in the future. Inflation has less negative effect on this program.

A savings plan is different so that the income and interest is boosted by market ups and downs of the investment. Most of the time, the savings plan is based on mutual funds.

The savings option is age based, as the student gets closer to college age, the plan becomes more conservative to protect the principle.

Prepaid plans can be under the direction of the state. Previously the 529 plans were taxed at the beneficiary's tax rate based on taxable income. After 2001, this plan became exempt from federal income tax. So this is with all the mutual fund interest is federal and state tax-free.

The account holder is the person who funds this 529-education fund plan. The beneficiary is the youth who will use the funds for their education. The account holder can change the beneficiary. The new beneficiary must be a family member however.

The money can be used in over 8,000 schools in the USA and about 800 foreign schools. Money can be used to pay tuition, fees, room and board, books and supplies and required equipment.

There are high limits to how much money can be invested in the 529-plan mutual fund program. These contributions are exempt from gift and estate taxes if the guidelines are met. Account holders can put in $60,000 per year for an unmarried beneficiary. If there are married, then the annual contribution can be $120,000. The couple have to be married and filing jointly. There are some other stipulations also.

The 529 plans is a great college fundraiser for the minor children who might be quite young. This is a popular plan for grandparents. Some of the fees in some states have gone up to 35% and this is why the account holder needs to research carefully. Another state charged $19.00 over 10 years to administer the fund.

The law outlines the program, which states that the fund is only tax free if used for college expenses such as tuition, room and board, fees that are mandatory, and books and computers and other tools as needed.

There are no age limits. The student can be 6 or 60 when the plan is initiated.

On the other hand, there is also an IRA savings program for college. The increase from an IRA are not taxed until the money is taken out and used. With an IRA, there is a penalty if the funds are removed and used before the beneficiary is 59 ½. You are required to withdraw some money by the time you are 70.

There are educational IRA plans as well. The limit for this IRA is $500 per year per child. This is a very small amount compared to $60,000 a year for the 529 plans. If the money is withdrawn for education purposes, then this is a tax-free fund.

These funds or IRA for education, are limited to the state you live in and is to be spent in the state you live in.

A financial planner can give you a hard copy plan outlining the state program by the state you live in. Usually if the IRA is administered by the state, the fees are much lower and your earned interest etc is much higher than if the fund was under the control of the little investment broker watching over your IRA.

With an IRA the fund is initiated in your state and is administered by your state most of the time.

In the 529 plans, there are about 8,000 USA schools and over 800 foreign schools on the roster.

If you live in a different state than you plan to establish your fund, then a broker in that state needs to set up the 529 plans for you. Some of those fees are much higher than state administered fees. This is how to choose a good 529 plan or an IRA.