529 Plan Basics You Should Know
Saving up for college isn’t always easy for parents, which is why the 529 plan was created in the first place. This is a plan specifically designed to help individuals save for their children’s college expenses. These are normally operated by an educational institution or state. The name originated from the Section it’s under (529) in the Internal Revenue Code. Plans like this were first created in 1996.
Funds Can Be Used Out of State
One good thing about 529 plans is that you can use the funds from your state plan to attend a college that’s out of state. These can cover costs wherever you decide to go nationwide. So if your child chooses to attend law school across the country, this would cover that as well.
You can also be a resident of California and invest in a 529 savings plan that’s in North Carolina and then use the funds to pay for tuition at a college in Virginia. You will have to check to see if the institution you’re interested in is eligible under the rules of 529 plans. You may learn that UAB’s bachelors in accounting online isn’t included.
States that Offer 529 Plans
Just about all of the states in the U.S. offer one or more 529 plans. The state is in control over how many plans it offers and what the provisions will be. So the rules in one state could differ entirely in a neighboring state, so be careful. You can use the Internet to find and compare state 529 plans. Most states have tax incentives, so check this out as well.
Different 529 Plans
There are two types of 529 plans to choose from – savings plans and prepaid plans. Under these categories, you will find a variety of different plans to select from. The savings plans are very similar to IRA and 401K plans, since it requires you to invest your contributions into a mutual fund or something similar. There are various investment options you can select from as well. The value of your account will rise and fall based on how the specific option you’ve chosen performs. You can keep an eye on this by reviewing the quarterly 529 plan performance rankings.
Prepaid plans, on the other hand, allow you to prepay some or all of the costs for colleges that are public and in-state. However, you can later convert them to be used for out-of-state and private institutions. If you want one that’s specifically designed for private colleges, you can invest in the Private College 529 plan.
The 529 prepaid plans are sometimes offered by educational institutions, however, they don’t have any 529 savings plans.
Signing Up for a 529 Plan
There are two ways you can go about signing up for a 529 plan – you can either go directly to a 529 plan manager or do so through a financial advisor. The Internet provides resources for finding managers and advisors to help you.
If you’re serious about saving up for your child’s college, consider opening a 529 plan.