Compare 529 Savings Plans: Tax Saving Tools
529 plans are more attractive than other form of college savings, including UGMA/UTMAs, Coverdell Education Savings Accounts, Series EE and I Bonds, or mutual funds. There are basically two types of 529 plans. One is Prepaid Tuition Plan and other is Savings Plan. You should compare 529 plans and choose the one based on the factors that are important to you. Below listed are few points to help you to judge best 529 plan:
* 529 Prepaid Tuition Plans are offered by respective states. 529 savings plan are offered by states with the aid from financial service companies.
* A 529 college savings plan is pretty much an investment account. Unlike a 529 prepaid tuition plan, a 529 college savings plan does not lock-in future college tuition costs at today's prices.
* Investments in a 529 savings plan grow tax-free as long as the money is used to pay for qualified higher-education expenses (tuition, fees, books, supplies, and room and board).
* You can compare 529 plans by the contribution limit also. The contribution limit of a 529 prepaid plan is dependent on the plan itself. It also depends upon the age of the student. If you compare a 529 prepaid plan with a 529 savings plan you will notice that the contribution limit of a savings plan varies from $100,000 to around $305,000.
* If you compare 529 plan according to the tax treatment on withdrawals you will find that in a prepaid plan if you withdraw money for educational expenses then that will be tax free. In case of 529 savings plan, the withdrawal amount will be tax- free for qualified expenditures only. Qualified expenses in case of a prepaid plan are the tuition at the college. In case of a savings plan, the qualified expenses include all the expenditures related to higher education. Namely, room, tuition, fees, books, computers and all other related expenses.
* Tax-deductibility is same in both the 529 plans. There are some states which allow the contributions to be partially or wholly deductible from state income taxes.
* You can also compare 529 plans for investment flexibility. In a prepaid plan, the plan operators invest all assets. In a savings plan, assets are professionally managed. There are a varying number of investment types from which the investors can choose. Depending on the specific plan, investors can choose from two to almost thirty mutual fund type investments. Once each year, you can change your investment choice.
* You can also compare 529 plans on the basis of ability to transfer the account. In a prepaid plan, it depends upon the type of plan. In a savings plan, you can transfer your account to some other 529 plan one time in each year.
* In both plans, the control of the account is with the investor only.
By analyzing the above mentioned points you can compare a 529 savings plan with a 529 prepaid plan and choose the one that suits your needs.