The 529 Plan: What You Need to Know

If you have a child who is preparing to go to college, or if you’re planning on heading to college yourself, there’s a good chance that you have heard of the 529 plan, also known as the qualified tuition program. This plan basically offers a way for soon to be students or the parents of soon to be students to start saving money for college. It gets its “529” nickname because of the section of tax code that explains this option.   

Basically, this is a plan that you can contribute to in order to save up for college costs- a smart move since these expenses are always increasing. Unfortunately, you won’t get a federal deduction for the contributions that you make to the plan, but you often get a state tax deduction, providing you invest in the plan that is relevant to the state in which you reside.

Another nice advantage of this plan is that as long as you use the money saved in it for qualified educational expenses, such as room, board, tuition, mandatory fees, and other required items, any earnings you receive will not be taxed.

If you’re ready to get these great advantages, then all you have to do is follow the steps, preferably with the help of a knowledgeable financial adviser, to set up a 529 plan. If you’re the one going to school, you can name yourself as the beneficiary, but if it’s your child who is to be the beneficiary, you can name him or her as such and yourself as the custodian.

Depending on where you live, you may also have the option of setting the plan up as a savings plan or a prepaid tuition plan. What you should and can do, however, will vary based on where you live and your goals for setting up the plan. For this reason and to ensure that your plan works out exactly as you hope, it’s always smart to seek advice from a financial adviser in your state. If you can do that, there is no reason that you can’t enjoy great benefits and help from your 529 plan.