Overview 529 Savings Account 529 Plan

The 529 Savings Account Plan is designed to help parents put their child though college. It is a state sponsored program, currently 16 states participate in the 529 plan. You do not need to live in one of the states to open an account.

An account is set up through an investment company. The investment broker will decide how much money to put in each of the three money investing funds used; short term yield funds, Equity funds and bond funds. The investor will also decide how aggressive or passive to be when investing the money.

2 Types of Plans

1) Allows you to pay for your child’s higher education in advance, locking in at today’s tuition costs. Saving you thousands of dollars, as the price of tuition will continue to rise. This plan allows you to pay the full tuition and generate extra funds for the student’s cost of living. You may also choose to make monthly payments as low as $25.00 a month and remain locked into the current tuition price.

2) Allows for you to save money in a tax-deferred account to pay for your child’s education at the current tuition price when the child starts college.

Both options are tax free, there is no income requirements to open an account. If you are unhappy for any reason with the account you choose, you can roll it over once a year, to a different account penalty free. If your child decides not attend college the plan may be “given” to a family member to be used for higher education purpose, including the child’s, spouse, children or even their grandchildren.

With every savings plan there are a few drawbacks. When your child begins college and the money is withdrawn whether it is the whole amount or the first semester it is considered income and taxes must be paid on the amount. Even though the plan can be given to another family member of the child for any reason. Sharing of an account is not allowed, each child must have there own 529 plan. As with most savings accounts, fees apply, some may be an enrollment fee and another yearly fee. There is a 10% penalty for withdrawing the money or closing the account for any reason other than its intended purpose.

When your dealing with financial investments of any kind there are always risks involved. I believe the 529 Plan is closely regulated by the state it’s issued in and investment brokers know what there doing. Short of the stock market crashing, you should be pretty safe in this plan.

If you’re not certain a 529 Savings Account is right for you, look at different options such as finical aide, student loans, Education IRA’s and other investment opportunity’s first. Then you will be armed with knowledge to make an educated decision about funding your child’s college education.