Tuesday, 24 April 2012

529 College Savings Plan - An Overview of Information

ByErik R Johnson

Many states and educational institutions offer 529 Plans to help families set aside money for the future costs of education that younger members of the family will incur. These plans are named for Section 529 of the Internal Revenue Code, which is a special tax code that provides money-saving benefits for those who qualify. The 529 College Savings Plan provides an excellent opportunity to save responsibly for a quality education in the future.

Details of the 529 Plan

The 529 Plan was developed in the late 1990s, after Section 529 was added to the Internal Revenue Code in 1996. Every state has some sort of savings plan for families thanks to this tax code, but the plans vary somewhat by state. Some states only offer one type of plan, while others offer a variety of options. This is why it's important to research all the plans that are available and see which one is most suitable.

The funds in these savings plans can be used for any accredited, qualifying college in the country, so it's also important to make sure the college of choice qualifies under the stipulations of the plan. This applies to out-of-state college tuition as well - so as long as the school qualifies, the college student can be attending school in any other state, regardless of where the owners of the savings plan reside.

Variations on the 529 College Savings Plan

There are prepaid 529 Plans, and there are also gradual savings plans, which both offer special tax incentives. If a consumer starts a 529 Savings Plan, he or she will be able to contribute money to a mutual fund or other investment product, much as one would to a 401(k) or Investment Retirement Arrangement (IRA). There are different investment options to choose from, and the increase in value of the plan will vary based on the success of the option chosen.

A Prepaid 529 Plan, on the other hand, allows the consumer to pay ahead of time for the costs of a public college in their home state. Educational institutions may even offer their own Prepaid 529 Plans, including the Private College 529 Plan. A traditional Prepaid 529 Plan may also be converted into a plan for private colleges or public colleges in other states.

There are many benefits to 529 College Savings Plans, both for the owner of the account and the beneficiary years down the line.

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