Q: What is a 529 Plan, and how does it help save or pay for my child’s college education?
A: A 529 Plan is an education savings plan offered by a state or educational institution to help parents and families set aside money for their children’s future college expenses. The 529 plan is named after the section of the Internal Revenue Code which created these types of college savings plans in 1996. Today every state currently has at least one type of 529 plan available, but keep in mind that 529 plans do and can differ from state to state. As with all investments it is important for you to do your research, and learn about the stipulations and requirements of your states 529 plan(s) before beginning to invest.
There are often times 2 main types of 529 plans, the first being a prepaid type of plan which will allow you to prepay part or all of the cost of your children’s state public educations (there are separate prepay plans for private colleges, and in most cases these prepaid plans can be converted if your child decides to attend college out of state). The second type of 529 plan is a savings oriented plan that works similar to a 401k plan. This plan will offer you investing options to invest your money into mutual funds and like investments, and your investment will then move up or down based on the performance of the chosen investments. A 529 plan is a great option for investing in your children’s college education, because the best thing to do when planning for college is to start early and do your research. By having some financial support to offer your children, you free them from having to go into substantial student loan debt.