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The Basics of 529 College Savings Plans

The Basics of 529 College Savings Plans

Families have many options to save for a child’s college education. One popular choice with multiple benefits is a 529 college savings plan. The 529 plan is aptly named after section 529 of the Internal Revenue Code. A 529 plan is an investment vehicle designed to promote saving for future higher education expenses of a designated beneficiary, to include grandchildren.

The Obama administration weighed in on encouraging states to make it easier for middle-class households to enroll in 529 savings plans. The White House issued a report stating that only 5 percent currently contribute, compared to 33 percent of high-income households. Funds from a 529 plan can cover a variety of expenses ranging from tuition, fees, books, to supplies required while attending any accredited college, university or vocational school in the United States, and even at a few foreign universities.

The money can also be used for room and board, if the student is enrolled with at least a half-time course load. Off-campus housing is included if costs are covered up to the allowance for room and board that the college includes in its cost of attendance for federal financial-aid purposes. Benefits for choosing a 529 plan to save and pay for a college education include:

One can choose between two types of 529 plans: prepaid and savings. Prepaid plans allow a student to purchase tuition credits, at today's rates, to be used in the future. A smart option considering the consistent inflation rates of a college education. Savings plans are different in that all growth is based upon market performance of the underlying investments, which generally consist of mutual funds. Most 529 savings plans offer a variety of age-based asset allocation options where the underlying investments become more conservative as the student gets closer to college age. According to The College Board, the average annual tuition and fees is currently $6,585 for a public university education and $25,143 for a private school education. There is no time like the present to start saving for college. To review and compare plans go to Try the College Savings Calculator.

by Staff Writer
Published October 26, 2009
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