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529 College Plans: The Inside Scoop


529 college plans are state-operated educational investment plans. Certain educational institutions are also allowed to operate a specific variation of these plans (529 Prepaid Tuition Plan). 529 plans are specifically designed to help parents save for their childrens' future education costs. These plans are actually Qualified Tuition Programs, but most refer to them as 529 after the section 529 of Internal Revenue Code where they are defined.
529 college plans allow families to invest money to fund future college expenses of their children. The expenses may include college fees, books, computers, boarding charges, lodging charges and other such expenditures related to college education.

The most important advantage of 529 college plans is that they offer you a number of special tax benefits that you can use if you fulfill some basic requirements. Some advantages of 529 college plans are as follows:

* You get incomparable income tax breaks. Even though your payments are not deductible on the federal tax return, still your money grows tax-deferred. In other words, tax payments on the account earnings is postponed. However, earnings are tax free as long as the disbursements are used for approved educational expenses. The Pension Protection Act in the year 2006 made this tax-free treatment permanent. If you should need to withdraw money for some expense not related to college, then you have to pay a penalty of 10% in addition to any taxes owed.

* The control of the accounts operation remains in the hands of the investor himself/herself, quite unlike other traditional methods of investment where the control goes to the beneficiary after (s)he matures. The beneficiary does not have right to the money in the 529 account. You, the donor, have all the rights. You decide when to withdraw, how much to withdraw and for what purpose the money should be used.

* It is very simple and easy to use this plan. All you need to do is to fill out an enrollment form and give your investment amount. After that you can relax and let the program manager handle the investments. Of course, if you want to handle the investment choices, most 529's give you that option.

* Everybody is entitled to take advantage of the 529 college plans. There are no eligibility conditions to avail benefits from the 529 college plan. The amount you can contribute to these accounts is large, as much as $400,000 for each beneficiary depending on the state. For 529 college plans, there are no salary limitations. Also, there are no age restrictions.

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