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529 Plans for Adults

Many of us have heard about 529 plans, and how they can be great savings vehicles for college. But, what you may not know is that they aren't for kids only. In fact, adults are now taking advantage of these plans to fulfill their college dreams.

What is a 529

The 529 is a state-sponsored college savings plan that almost anyone can invest in regardless of income. There are two basic types of 529 plans: prepaid programs and savings programs.

States offering prepaid tuition contracts covering in-state tuition will allow you to transfer the value of your contract to private and out-of-state schools, but you may not get full value. With a 529 savings program, the full value of your account can be used at any accredited college or university in the country.

You should think of a 529 as an educational 401(k) you invest over time with a big payoff and great tax benefits. According to Diana Plucienkowski, a financial planner at Meg Green & Associates, they're a great way to save. There are no federal taxes on earnings and withdrawals, as long as the money is used for school. "You can take out as much as you need for education expenses, tuition, room and board, those types of things," says Plucienkowski. And those types of things may also include mortgage payments if you're a homeowner going back to school.

The benefits got even better this year. "What changed with the 529 plan as of January 1st is that these are tax free earnings, tax free withdrawals. Prior to this, the earnings grew tax deferred, says Plucienkowski.

By the end of 2001, 47 states were offering at least one type of 529 plan. Many of those plans are open to residents and non-residents alike. That's why it's important to do some research before deciding which plan is best for you and your family.

There are several websites that give you details about each state's plan, including maximum contributions, eligibility requirements, performance information and contact information. Here are two of them: College Savings and Saving for College.

Any Risks?

Each plan sets its own contribution requirements and you decide on a plan based on your risk level. However, you don't pick the investments, a plan administrator does, according to Plucienkowski. They can include a variety of investment options, depending on the company managing the plan. But, keep in mind if you're an adult, you may not want to choose an ultra-risky plan since you may need that money soon.

Smart Idea! Bright Idea

How much money should you be setting aside each month so you can fully finance an education? Use this handy tuition savings calculator and find out. Click here.

Money Saving Tip!Did You Know?

On average, people with college degrees earn 81% more than people with high school diplomas. Over a lifetime, the gap in earnings potential between a high school diploma and a BA is more than $100,000.

College Board

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