529 College Savings Plan

529 Plan

This is a savings plan sponsored by state to encourage people to save for college expenses. Parents can contribute towards this plan to pay some, if not not all, college expenses of their children. However, it’s not mandatory to use the funds for your child. You can, at any time, change the beneficiary of the plan. Along with compulsory savings, this plan offers certain tax benefits.

529 College Savings Plan or 529 prepaid Plan

529 plans can be broadly classified into two categories: 529 College Savings Plan and 529 Prepaid Plan. The regulations regarding deposits and withdrawals in such plans can vary from state to state. However, in general, savings plan are more flexible than prepaid plans, regardless of the state you live in.

A 529 College Savings Plan allows you to use funds for any kind of college expenses, at any university, and in any state. A prepaid plan, however, prohibits usage of this money in any state other than your home state.

What’s Your State

Before you invest in any such plan, research about the state laws. It may be possible that a prepaid plan may be more beneficial than a savings plan in your state. Things you must consider before investing money in either of the plans are: taxes levied by the state (and tax deductions), types of products available, fees charged, withdrawal rules, and so on.

Choosing the Best Plan

Once you have decided which one to invest in (Savings or Prepaid), pick up any latest personal finance magazine or contact a financial advisor to know the top performing 529 plans. Along with tax benefits, one must make sure the charges are not too high and is flexible. This is a comparatively easy step.

Get Started

Probably the most useful piece of advice I can provide is get started immediately. The sooner you invest the better. You don’t have to wait until you become an expert in 529 plan regulations. Simply select a plan that suits your needs, and start investing. Start with investing small amount every month, and gradually increase the amount.

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