Miriam is an Assistant Manager at a national banking institution. Her weekly posts will help you prepare for the financial realities of education and life. Be sure to leave a comment or send an email if you have specific financial questions.
College Savings 101...Start with a 529
What is a 529 Plan?
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. It is named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1998.
State plans are OK for out of state colleges
529 Plans can be used to meet costs of qualified colleges nationwide. In most plans, your choice of school is not affected by the state your 529 savings plan is from. You can be a CA resident, invest in a VT plan and send your student to college in NC. Check to see if your institution is eligible under 529 rules...here.
Which states offer 529 plans?
Every state now has at least one 529 plan available. It's up to each state to decide whether it will offer a 529 plan (possibly more than one) and what it will look like, meaning 529 plans can differ from state to state. You should research the features and benefits of your plan before you invest, research state 529 plans...here and even compare between plans compare between plans...here.
Tax Benefits
As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to you, the plan participant. See the top 7 benefits of 529 plans...here
Some states (but not all) offer tax incentives to investors as well. Research your state's tax treatment...here
Types of 529 plans
529 plans are usually categorized as either prepaid or savings plans.
Savings Plans work much like a 401K or IRA by investing your contributions in mutual funds or similar investments. The plan will offer you several investment options from which to choose. Your account will go up or down in value based on the performance of the particular option you select.
Prepaid Plans let you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges. The Independent 529 Plan is a separate prepaid plan for private colleges.
Educational institutions can offer a 529 prepaid plan but not a 529 savings plan (the private-college Independent 529 Plan is the only institution-sponsored 529 plan thus far).
Enrolling in a 529 plan
There are two ways to invest in a 529 plan:
Directly with the 529 Plan manager [now available at most banking institutions] or through a financial advisor.
Courtesy Savingforcollege.com
Tuesday, December 9, 2008
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2 comments:
If you plan to start a college saving plan the first investment to consider is the Monetta Young Investor Fund. A unique fund that combines a kid-themed investment focus,financial literacy component and college tuition credits. Goes way beyond the benefits of a 529 plan,espacially if you use a Coverdell account.
Thank you for your comment. Yes, the Monetta Young Investor Fund is another great option for college savings, especially with the added aspect of financial literacy. A 529 is a starting point for many families when reviewing investment options.
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