The Evolution of the 529

Parents know kids can be expensive, but college can break the bank. According to Tim Berry with the College Savings Plan Network, 529 plans allow parents to put money away in small amounts, or one large lump sum, and get tax advantages doing it. Tim Berry says the first 529 plans were simply prepaid tuition plans for use at an in-state school. Now, Berry points out, there's much greater flexibility.

College Savings Plan Evolution

Location, location, location
Berry says, "Now, you can utilize those dollars at a university in your own home state, or a university across the country, or even across the world."

Control
You have more control than ever on just how safe--or risky -- your investment will be. Berry says, "You, as an investor, can choose your own portfolio from a selection of funds and choose the asset allocation that you are most comfortable with."

Seller
Previously, you had to buy a plan through a state-designated financial institution. Now, many states are selling 529's through financial planners. You may pay extra fees for the know-how an advisor brings. Experts say fees are one of the things you should closely monitor.

Bright Idea!

There may be some tax benefits if you buy a plan through your home state. Expenses vary, as do the portfolio performances, so Berry says consider both carefully.

Not Just for Kids

Many of us have heard about 529 plans, and how they can be great savings vehicles for your children's college costs. 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 in Miami, 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.

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.

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.

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