One way that many families prepare to save for college is through a 529 Plan. A 529 plan, named after section 529 of the Internal Revenue Code, is a tax-advantaged way to save for future qualified college expenses. When the time comes, the account holder can withdraw the savings tax-free for qualified education expenses.
There are two versions of the 529 Plan that you can choose from, depending on how you would like to save for college.
- The 529 Savings Plan is a more traditional way to save for college. The money you save is invested conservatively, like an IRA of 401K.
- The 529 Prepaid Plan allows you to prepay the tuition at today's costs and use the credits later on at qualifying in-state schools.
Nearly every state offers a 529 Plan. While it is not required you invest in a 529 Plan in your home state, some states offer tax incentives to in-state account holders. Since plans can differ from state to state, research and compare different plans to determine which best fits your needs. Regardless of what state plan you choose, your child can attend any eligible school in the United States.
Depending on the plan you choose, you can enroll directly through a state's 529 Plan manager or through a financial advisor.
Did You Know?
We encourage you to consult a financial planner when comparing savings accounts. You can also consult a tax professional for tax advice. Please also see IRS Publication 970 for more information or call the IRS at (TTY ).