For those wanting to save for college tuition and expenses, 529 savings plans are good options. These tax-advantaged savings plans are sponsored by states, colleges and other state agencies to encourage people to save for college expenses and tuition. They are authorized under Section 529 of the Internal Revenue Service and offer several advantages over other college savings plans. There are two types of 529 plans to choose from depending on your needs and goals. A 529 Prepaid Tuition Plan locks in tuition prices as of the date you enter the plan; however, it only covers the cost of tuition and mandatory fees. Other restrictions as to enrollment periods, age limits of the beneficiary and residency requirements offset the benefits of state backing and tuition locks. Furthermore, the amount you can contribute to pre-paid tuitions plans per year is limited much like contributions to other retirement plans.
A 529 College Savings Plan does not lock tuition rates and is not guaranteed by any state so investments are subject to normal market risks. However, there are no age limits; therefore, children and adults may enroll. Enrollment is also open all year and there are no residency requirements. College Savings Plans also have much higher contribution limits and cover an array of costs in addition to tuition such as room & board, books, supplies and other qualified college expenses. With a 529 College Savings Plan you may also transfer you plan from state to state so that you can attend the college of your choosing. Furthermore, many plans offer automatic withdrawal to make savings easy.
In either 529 plan, if you withdraw the money for anything other than college tuition, of qualified expenses in the collage savings plan, you will be taxed and penalized on the withdrawal. Furthermore, remember that even though you can contribute unlimited amounts, in most cases, to a 529 College Savings Plan, any money remaining in the account after all expenses have been paid is subject to taxes and penalties. In addition, having a 529 plan may affect financial aid eligibility depending on the laws and regulations at the time you apply for financial aid.
Even with the drawbacks, 529 plans are an excellent way to save for college tuition and expenses. You can find a list of most 529 plans at College Savings Plan Network. Make sure that you research a number of plans to find the one that meets your goals for saving for a college education.
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