Parents often hear that they should begin saving early for their children’s college educations, but it can be tricky to know how to get started. You may have heard about 529 plans as one option.
A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. States, state agencies, or educational institutions sponsor 529 plans, which are legally known as “qualified tuition plans.”
These plans can either be pre-paid tuition plans or college savings plans. All 50 states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan.
Pre-paid Tuition Plans generally allow you to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most of these plans are sponsored by state governments and have residency requirements. They often involve locking in tuition prices at eligible public and private colleges and universities.
College Savings Plans do not have a lock on college costs. They generally permit you to establish an account for a student to pay eligible college expenses, including tuition, room and board, mandatory fees, and books and computers (if required). There are typically several investment options for contributions, which the college savings plan invests on behalf of the account holder.
For more detailed information, visit: http://www.sec.gov/investor/pubs/intro529.htm