A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by States, State agencies, or educational institutions, and are authorized by Section 529 of the Internal Revenue Code. All fifty States and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan.

Most 529 plans are managed in a similar fashion as traditional stock portfolios. The account holder may choose from several different investment options in order to reach short- or long-term goals. Investment options often include stock mutual funds, bond mutual funds, and money market funds, as well as age based portfolios that automatically shift toward more conservative investments as the beneficiary gets closer to college age. Pre-paid tuition plans, on the other hand, offer the ability to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. 

Families investing in 529 college funds also receive significant tax incentives. The earnings on 529 plans are not subject to Federal tax, and in most cases, State tax, so long as you use withdrawals for eligible college expenses, such as tuition and room and board.

Although it may seem a long time away now, your children will be looking at colleges before you know it. Investing in a 529 college plan today will ease the sticker shock you will most likely suffer when you receive your child’s first tuition bill.

Although it may seem a long time away now, your children will be looking at colleges before you know it. Investing in a 529 college plan today will ease the sticker shock you will most likely suffer when you receive your child’s first tuition bill.