529 College

As a parent, it is true that one of the most valuable legacies that you can leave your children is the gift of education. No matter which economic class your family belongs to, sending your children to college should be one of your main priorities as a family. However, the expenses involved in sending students off to pursue higher education can be quite steep, which is the reason why the US government has established Internal Revenue Code section 529. Basically, 529 college plans offer a tax incentive to individuals or families who invest in a plan for college savings purposes. There are two types of 529 college plans: the 529 college savings plan and the 529 pre-paid tuition plan. Each state in the country offers either one or both of these types of 529 college plans, and the numerous advantages makes it a must for families to put in such an investment.

The first type, which is the 529 college savings plan, offers several investment options for the person who initiated the account. The beneficiary's college tuition, as well as other expenses like room, board, books and miscellaneous fees will be covered by the 529 savings plan. One drawback when choosing a college savings plan in favor of a prepaid tuition plan is that the investment may or may not decline in value, depending on the market since it acts more like an investment scheme rather than a locked-in insurance plan. However, there is no age limit for the person benefiting from a 529 college plan, and enrollment is conducted year-round. This type of 529 plan can only be administered by states.

The second type is the prepaid tuition plan, and it lets the person who initiated the account pay for tuition credits in advance. Think of it as an advanced payment for the enrollment, but the good thing is that you can purchase units with the present rates. A prepaid 529 college plan can be administered either by the state or by private and public universities and colleges. The difference between a college savings plan and a prepaid tuition plan is that the latter can only cover tuition and other fees which are mandatory. Most prepaid plans do not cover room and board, although there are some exceptions. Finally, a prepaid plan has an age limit, a limited enrollment period and there is a requirement for both the sponsor and the beneficiary of the plan to be a state resident. Now that you know the difference between the two types of college plans, you can check out which type is available your state so that you can start early and use a 529 college plan to secure your child's future.