What is a 529 College Savings Plan?
Families use many different financial instruments to save for college. From the time the child is born, or in some cases even before, parents, grandparents, and other family members put money aside to help pay for the future cost of college. One of the most popular financial vehicles to use is a 529 College Savings Plan. Let’s take a look at the 529 and how it can be used to save for college.
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529 College Savings Plan
Let’s take a look at the 529 College Savings Plan and how it can be used to save for college.
What is a 529 College Savings Plan?
A 529 plan is a type of savings plan designed to encourage families to save for future higher education expenses. Named after Section 529 of the Internal Revenue Code, these plans are run by states or educational institutions, and are specifically created to help families set aside funds for college. The funds in a 529 plan grow tax-free, and withdrawals for qualified educational expenses are also tax-free.
Savings Plans vs. Prepaid Tuition Plans
529 plans come in two main types: savings plans and prepaid tuition plans. Savings plans are investment accounts that allow families to save money and invest it in a variety of investment options, such as mutual funds or exchange-traded funds. Prepaid tuition plans, on the other hand, allow families to pre-purchase tuition credits at today's rates, which can then be used in the future when the student is ready to attend college.
How Can A 529 Plan Be Used?
One of the benefits of a 529 plan is that the funds in the account can be used for a variety of qualified higher education expenses, including tuition, fees, room and board, books, and supplies. Additionally, the account owner maintains control over the funds, regardless of the student's age, and can change the beneficiary to another family member if necessary.
529 College Savings Plan Summary
Overall, a 529 plan is a flexible and tax-advantaged way for families to save for the cost of higher education. By starting early and contributing regularly, families can help ensure that their children have the financial resources they need to pursue their educational goals.
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