What’s A 529 Plan?

If you are not prepared for the rising cost of college, then it’s time to use a 529 plan which designed in the United States to encourage saving for the future higher education fees.

A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs.

529 plans differ from state to another as each state determines how its plan is structured and which investment options are offered. But state plans are okay for out of state collages.

There are two types of 529 plans:

First – Prepaid Tuition Plans: Form its name, it lets parents pre-pay all or part of the costs of an in-state public college education.

Second – Savings Plans: It looks like a 401K or IRA by investing your contributions in mutual funds. Here, it’s allowable to select a particular option to invest in.

Savings plans are more risky than prepaid tuition as they are based upon the market performance of the underlying investments. That means your account may go up or down in value.

Note: you can get a 529 prepaid plan from higher education institutions, but not a 529 savings plan. Prepaid plans may be administered by states or higher education institutions. Savings plans may only be administered by states.

As there are two types of 529 plans, there are also two ways to invest in a 529 plan which are:

1- Directly with the 529 Plan manager.

2- Through a financial advisor.

The last question now: Is investing in a 529 plan right for me? Simply put, before you start saving specifically for college, you should consider your overall financial situation. If you can afford, then do.

529 plans are very flexible and helpful in staying our money under control.

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