A 529 College Savings Plan or 529 Plan as they are more commonly referred, is a tax-advantaged investment designed to encourage saving for higher education expenses. The 529 comes from the IRS section it is named after. There are two different types of 529 plans: savings and prepaid.
Prepaid plans allow you to purchase college tuition credits, at today’s rates for future use. The savings plan is more akin to a mutual fund, where all gains are from the chosen investments instead of from reduced inflation of tuition. Most 529 plans offer a wide range of investment options depending on the age of the beneficiary.
Account owners can contribute up to $60,000 per beneficiary or $120,000 if married filing jointly.
The maximum any one person can give per beneficiary is a total of $250,000.
Some of the advantages of 529 plans include:
- Tax free growth (federal and state)
- Beneficiary can be changed at any time
- High contribution limits
- Assets in 529 plans are protected from bankruptcy
- Money can be used at almost any institution (over 8,000 participating schools in the United States)
- Besides tuition, money can also pay for housing, books, supplies and required equipment
