Happy 529 Plan Day! | 05.29.13
Welcome back readers! In honor of 529 Plan day (5/29/13), I’m here to help you learn about 529 plans and hopefully help you win some money for college.
What is a 529 Plan?
To start off, what is a 529 plan? In short, a 529 plan is a savings plan with tax advantages that helps students pay for college. 529 plans can be further broken down into 2 types of college savings plans: prepaid tuition plans and college savings plans.
Prepaid Tuition Plan:
You know how your grandparents always talk about how they could buy a candy bar for 5 cents when they were kids? Today, that same candy bar costs $1.00. Over time, prices rise, and prepaid tuition plans enable you to pay the price of college at the time that you start your plan. Prepaid tuition plans allow you to lock in the current tuition rate for your future educational expenses, and are not subject to federal, and sometimes state, taxes. However, prepaid tuition plans require the student to attend one of the eligible public colleges or universities from the state of the tuition plan, and place a very tight restriction on how you can spend the money from the plan. In addition, prepaid tuition plans are counted as a parental asset on your FAFSA application when determining your Expected Family Contribution, thus potentially lowering the amount of federal aid for which you may qualify.
College Savings Plan:
A college saving plan offers a riskier, but also less restricted savings plan for college students. College savings plans cover most types of expenses at most schools, and don’t limit students to attending in-state schools. However, college savings plans require investing in a mutual fund, which doesn’t lock in tuition prices, and leaves families with the risk of losing money or not having enough money in the fund to pay for college. To add to this, families must pay various fees depending on the exact terms of the plan.
Ultimately, it’s up to you to decide which savings plan is right for your family. Learn more about 529 plans.
In honor of 529 day, various college saving companies are holding sweepstakes to give away money for 529 plans. For example, Virginia is giving away two $5,000 savings plans, the College Savings Plan Network is awarding $529 to ten people who “like” their Facebook page, and Georgia is giving away two $10,529 savings plans. For more prize opportunities, check out this article from Forbes.
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