What is the 529 College Saving Plan?

The value and importance of a college education has never been higher. Along with the college tuition tax credit, prepaid college tuition plans are geared toward helping families afford college. So what exactly is a 529 college saving plan? A 529 college saving plan comes in many forms. There are prepaid college tuition plans that lock in the cost of college tuition today even though the person will be attending in the future. The other type of 529 college saving plan is similar to investing in stocks or mutual funds except that the earnings can only be used for college related expenses.

Like any investment vehicle, the 529 college saving plan has its pluses and minuses. Prepaid college tuition plans are safe because they are backed by the government and do not depend on market performance. The downside is that they are very conservative, are geared toward in-state public institutions, and have severe penalties for cancelling or early withdraw.

The traditional 529 college saving plan can earn you a greater return, but is riskier as it depends on market performance. They also have a limited definition of what college costs are and generally do not allow the money to be used for living expenses such as rent. Despite their drawbacks, 529 plans, as well as the college tuition tax credit, are great ways for families to finance their child's education. Before investing in a plan, perform Internet research and talk to an investment professional.

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.