What is a 529 Plan

 

The problem that most parents face is the prospect of paying for a child's education; lets be realistic, most parents are not that fortunate to have been born into wealth.

 

We encourage our children to seek a higher education all of their lives, and rightly so, but while we are encouraging them, we also need to be planning for a way to pay for that higher education. Simply saving a few dollars away on a regular basis probably won't cover the cost. The cost of college education is rising year on year at an even greater rate than inflation.

 

The problems caused by sub-prime lending issues and the “credit crunch” should now be focusing our minds even more. We should all aim to get out of the ghettos we may find our selves in whether in our minds, or real.

  

One of the better ways to fund a child's college education is through the use of what has come to be known as "529 plans." A 529 plan is an investment plan operated by individual states rather than the federal government that provide families with a federal tax-free way to save money for college. These plans are known as qualified tuition programs (QTPs), but they are commonly referred to as "529 plans," "state 529 plans," or "section 529 plans" because that is the number of the section of the IRS code that provides the plans' tax breaks. QTPs were authorized by Congress in 1996.

  

There are two kinds of 529 plans available - college savings plans, and prepaid tuition plans:

 

* College Savings Plans: College savings plans allow parents to use the plan funds for college expenses at any college. (The benefit is that the child can select the college he or she wishes to attend.)

 

* Prepaid Tuition Plans:  Prepaid tuition plans allow parents to lock in future tuition at public state colleges at current rates. (The benefit is a greatly reduced total cost.)

 

Every state in the union has at least one of these options, and most states make both options available.

 

There are advantages to both kinds of 529 plans. Parents need to investigate and understand and purse each available option. It's to everyones' advantage to make a choice and start the plan as early as possible in a child's life.

 

Source: Unravelling Student Loans