Picking The Best 529 Plan For College
A 529 plan is a program geared towards funding a college education. One of the benefits of a 529 plan is the tax break. For example, all of the money put into a 529 plan is federal and state income tax free.
There are two types of 529 plans. The first is a Prepaid Tuition plan, and the second is a College Savings plan.
Prepaid Tuition Plan
The Prepaid Tuition plan allows parents to lock in today's tuition rates, without having to worry about higher tuition fees when their child goes to college. However, there is a major drawback to this plan. If the child doesn't end up going to the school where the tuition has been paid, then all of the money is lost. Prepaid Tuition plans are not portable.
Another factor to consider when looking at Prepaid Tuition plans is that there aren't any investing options. Instead, the program uses the prepaid tuition in their own investments, in order to make up for the difference in tuition when the child goes to school. This places the investment risk into the hands of the program, and not the parent.
College Savings Plan
The College Savings plan is the most popular type of 529 plan. College Savings plans are designed to help students save for all of their college expenses. This includes tuition, fees, room and board, textbooks, and computers.
This plan has several advantages over Prepaid Tuition plans. Those advantages include:
- Not limited to one school or state
- Not limited to children - Adults can participate
- Flexible investment options
However, as you would expect, there's a potential downside to College Savings plans. First, they carry risk. The plan is based on stocks and mutual funds, and is therefore vulnerable to the market. If the market ever drops significantly, then so could the available funds in the 529 plan.
Secondly, there are fees, charges, and expenses. Each 529 College Savings plan is different, and carries their own unique fees. It's important for parents to compare and contrast several plans, before they choose one.
Lastly, there are contribution limits. Each plan has their own minimum and maximum contribution limits. Make sure you pick a plan that is financially manageable, because if you don't, you may have to pay penalty fees.
Finding The Right 529 Plan
One of the best places to start looking for a 529 plan is the College Savings Plans Network. In 1991, the College Savings Plans Network formed as an affiliate to the National Association of State Treasurers. Intended to make higher education more attainable, the Network serves as a clearinghouse for information among existing college savings programs.
Their website makes it incredibly easy to research and find 529 plans. They have an easy-to-use 529 plan locator, and several other 529 plan educational and research tools. Another way to find the right 529 plan is to ask friends and family, or to seek out the assistance of a qualified financial advisor.