529 college savings accounts are types of investment plans which assist families in saving for the postsecondary education expenses of a beneficiary, which is specifically designated on the account. The college savings fund derives its name from the Code of the Internal Revenue Service, “Section 529”. A 529 plan is administered to families by various state-based agencies and various organizations. As a result of being named after an Internal Revenue Service Code, all 529 college savings accounts are considered to be tax-advantaged. When withdrawals are pulled from these types of college savings accounts, it will remain untaxed by federal income tax, just so long as the withdrawal is placed towards expenses associated with higher education. Additionally, there are numerous states that will offer withdrawals that are tax-free, and growth that is tax-deferred.
The Differences among States
Each state that offers individuals access to a 529 college plan makes the determination on how the plan is structured and which types of options are available, as far as investment is concerned. Additionally, many states will offer other types of benefits. Examples of these benefits include experiencing deductions on state tax obligations, grants that match the investment into a college savings fund, protection from various creditors, and a total exemption from state-based calculators that determine financial aid. When searching for 529 college savings accounts, you must go through your state in order to obtain such a plan.
Currently, only two types of 529 college savings accounts are in existence. The first is the “Prepaid Tuition Plan” and the second is the “Savings Plan”. The following outlines some basic information pertaining to each of these types:
- Prepaid Tuition Plan – These are often referred to as “Guaranteed Savings Plans”. These plans allow families to obtain a pre-purchase of the tuition that is based on the going rates of a college education in today’s world. Then, when the beneficiary starts college, the plan pays out. These plans may be offered by states or by colleges, themselves. The performance of such a plan is heavily dependent upon inflation that has a direct impact on tuition.
- Saving Plan – In most instances, the underlying investment on this type of plan are mutual funds. The earnings that are accumulated within the account are based on the market-based performance associated with those mutual funds. These types of plans may only be obtained through the state.
529 college savings accounts are highly beneficial to those families that have a desire to send their child to college, but, require the funds to accomplish this goal. These savings plans are often called “Qualified Tuition Plans”. The 529 plan may be sponsored by the state in which you reside, state-based agencies, and educational facilities. This type of college savings fund is 100% authorized by Section 529 as outlined in the Internal Revenue Service Code. While most 529 plans are a savings plan, there are several private-based colleges that provide prepaid tuition 529 plans. In order to determine the plan that is best suited for you, visit 529 College Savings Plan today by clickingHERE.