What Is a 529 Plan?
A 529 Plan is an education
savings plan operated by a state or educational institution designed to help
families set save money for expenses associated with a college education at
qualified colleges throughout the United States. Generally speaking,
your choice of school is not affected by the state your 529 savings plan is
from; your state of residence does not limit the state your college can be in.
Every state now has at least one 529 plan available, and the plans vary considerably state to state. It’s a good idea to research the features and benefits of your plan before you invest.
For example, it is good to know the details of the tax advantage. As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to you, the plan participant. Some states offer tax incentives to investors as well.
There are two general types of 529 plans:
- savings programs
- prepaid programs
If you decide to use a 529
savings program, the full value of your account can be used at any accredited
college or university in the US.
The states offering prepaid tuition contracts covering in-state tuition will
allow you to transfer the value of your contract to private and out-of-state
schools (although you may not get full value depending on the particular
state).
The tax law now permits higher education institutions to offer their own 529 prepaid programs. These will allow you to target your tuition prepayment to the sponsoring institution (or group of institutions). The Independent 529 Plan is the only such program currently in operation and you must check to see what restrictions they may place on the colleges covered by the plan.