Got Tuition?

The 529 Plan is a state-sponsored savings program for college. While the features of each state’s plan are different, there are generally two kinds of 529 Plans: prepaying at today’s tuition rates or saving in a tax-deferred account for future tuition costs. The latter is generally considered to be preferable and is more widely available.

Tax deferral on the earnings, as long as they are used for college tuition, is the most obvious benefit to the 529 Plan. Some states offer additional tax benefits as well. In most states, there is no limitation on when or at what age a person must use their 529 account. If they decide against college entirely, the account can even be rolled over to another family member. There are also no restrictions about who can open an account for whom. It is allowable for a person to open an account for themselves, their children, grandchildren, friends, neighbors, anyone. And anyone is allowed to contribute to each account, not just its owner.

The major downside of a 529 Plan is that money not used for college will be taxed and have a 10 penalty added. It is also possible it will affect financial aid eligibility.