529 college savings plans:
- Are college investment vehicles with tax and cost advantages
- There are no federal taxes for qualified withdrawals for educational expenses.
- Most states do not charge tax on qualified 529 withdrawals
- Are sponsored by all 50 states (and some educational institutions)
- Are named after Section 529 of the IRS code
- Offer two types of plans: Pre-Paid Tuition Plans and College Savings Plans.
- Pre-Paid Tuition plans lock in the current price of tuition for a future student
- College Savings Plans are investments.
- Because states sponsor 529 plans residency in the state might be required
- Stock, bond, and money market funds, are acceptable in most plans
- Investments can be guaranteed by the state or educational institute.
- Some types of investments, like stock funds, are not guaranteed or insured.
- Some college expenses are “qualified” expenses, others are not.
As noted above there are two major types of 529 savings plans. Each of these plans are unique and provide various advantages and disadvantages. Pre-Paid Tuition Plans have more regulation and restrictions but provide insurance and stability. College Saving Plans are investment type accounts which are very flexible, less regulated, but are exposed to market risk.
Consult your state for specific guidelines on setting up a 529 college savings plan.