By: Jeremy Radnor
As the price of college tuitions continue to rise and the economy continues to drop, people are starting to plan and save earlier in order to pay for college. One very common means of saving for college is a 529 plan. A 529 plan is an education savings plan controlled by state or educational institutions that help families set aside funds for the cost of college in the future. The 529 plan derives its name from section 529 of the Internal Revenue Code. Families can invest in any state 529 plan and use it in a different state if they so choose. This means a family in New Jersey can use a New York 529 plan and pay for school in Califorina. Families can invest in a 529 plan through a 529 plan manager or through a financial advisor.
There are two primary forms of 529 plans, savings and prepaid. Savings works like a 401(k) or an IRA. Savings can be used at any accredited university. Prepaid plans allow families to pre-pay all or part of the costs of an in-state public university. It can also be convereted to be used for private universities.
In addition to making it easy to save for college, 529's also contain other benefits. These benefits include:
1.Federal Tax Benefits
2.State Tax Benefits
3.Donor retains control of the funds
5.Simplified tax reporting
7.Substantial deposits allowed