Invest In 529 Plan And Save For Education Needs
A 529 plan is a program operated by the various states in the USA. They are investment plans which provide tax advantages as well as an easy way to save towards a college education.
Officially, the 529 plan is called a QTP or Qualified Tuition Program. Since they are included in Section 529 of the Internal Revenue Code, these investment programs have become known as a 529 plan. Authorized in the year 1996 by Congress, these 529 plans have gained immense popularity over the last fifteen years. This plan is considered by most to be the best option for savings by parents for their child's education.
Why, you might ask, is this the best option? While other programs, such as Coverdell Education Savings Accounts also provide tax breaks, the 529 plan combines great Federal and state tax breaks along with the possibility of investing fairly large sums of money towards education. The state tax breaks vary with the 529 plan and can make a huge difference in the long term outcome of your investments.
Basically, 529 plans are of two types. (1) Prepaid Tuition Plans, and (2) Savings Plans.
* Prepaid 529 plans permit you to buy tuition credits. These credits are purchased at the present rates and can be used in future. With the tuition inflation that has occurred during the past thirty years or so, the Prepaid plans offer a great way to lock in tuition rates now for your beneficiary's college education which may be eighteen years away. States are slowly coming to the conclusion that while these are great for the public, they may not be such a great choice for the state, especially since college tuitions have been rising at double the rate of general inflation recently. States have been reluctant to open new Prepaid program and some have been closing the doors to new investors. So if your state still offers one, it may be time to jump in, since the opportunity may disappear next year.
* Savings Plans differ from prepaid plans in the way that their growth depends upon market execution of the investments. These generally are comprised of mutual funds. 529 savings plans allow parents to use their saved money for future expenses in any college, but you must remeber that these investments do not provide guaranteed returns and the account value may rise and fall with the general market conditions. A saving plan may not assure smooth sailing for your child, but will certainly be a big help when college age arrives.
Thinking and acting early for your child's future education is crucial. Start planning for your child's college education from the earliest stages of life. The reason is that higher education costs are rising at an alarming rate. To try to cope with inflation you should start saving now. Investing in a 529 plan now will allow you to enjoy your child's college years without as many money worries.