Oct 2008
2
A 529 plan has benefits like reduced state and federal taxes, scholarship or grant opportunities and, most importantly, is exempt from state financial aid calculations.
There are two kinds of 529 plans: savings and prepaid . In the savings plans, growth is based on the market performance of the investments in the plan, typically mutual funds. Most of these 529 savings plans offer an option where the investments shift to more conservative investments as the covered student gets closer to college age. Prepaid plans, on the other hand, allow you to purchase tuition credits, at current rates, for use in the future. So their monetary performance is based on tuition inflation.
The money from these 529 plans can be used for tuition, books, fees, as well as supplies and equipment required for studies at any accredited vocational institute, college, or university in the United States.
The tax benefits are particularly interesting...Investing in a 529 plan offers parents special tax benefits. Earnings in 529 plans are not subject to federal tax, and in most cases, state tax, as long as you use withdrawals for eligible expenses, such as tuition, room and board, or textbooks. This article regarding the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), explains how 529 plans gained their current taxation advantages.
A particularly well-done website that has extensive information by state, studies on the lowest-cost 529 plans, and more can be found at savingforcollege.com.
