Whether you’re saving for your own higher education or your child’s college fund, the rising costs of tuition probably have you worried. Everything from room and board to textbooks has become more expensive. How will you ever afford to send your kid to college? There are more ways to pay for college than student loans and scholarships. Consider a 529 college savings plan.
What is a 529 Plan?
Formally known as a qualified tuition plan, a 529 plan is a tax-exempt college savings account. In most cases, a person will open an account for a beneficiary, which is usually a young family member. You can also open a 529 plan for yourself. You can find 529 plans in every state, although some states may require you to be a resident. There are two types of 529 college plans: the prepaid tuition plan and the college savings plan.
Prepaid Tuition Plans
The cost of tuition is constantly climbing. In the past, you could cover costs of tuition with wages from a part-time job. That likely won’t be a reality for your child. Do you wish you could freeze time and pay a locked tuition rate that would otherwise be steeper down the road? With a prepaid tuition plan, you can. Prepaid tuition plans can be found at certain colleges and universities across the country. They allow you to buy credits at today’s price for your future student. Many prepaid tuition plans are backed by the state, and can be paid in installments or even as a lump sum. Unfortunately, room and board fees aren’t covered in all prepaid tuition plans and prepaid tuition plans must be used for in-state tuition.
College Savings Plans
Unlike a prepaid tuition plan, a college savings plan doesn’t lock in the current costs of tuition. You can use the funds in a college savings plan towards any school related expense, not just mandatory fees and tuition costs. While most prepaid tuition plans have an age limit, anyone can benefit from a college savings plan. These plans can be used to pay for any college in America. Do you want your money to make its own money? You can invest with the funds in a college savings plan. Typically, people go with investments that will start off with high profits, then gradually become more conservative as the beneficiary ages. Money in a 529 plan must be used for college expenses. You can’t withdraw funds from your college savings plan early without facing fees, and if you spend the money on non-education expenses, you’ll have to pay taxes.
Find the Right Plan For You
Before you open a 529 account, ask yourself some questions. Should you go for an in-state or out of state plan? How do you want to pay for college? You might like the freedom of the college savings plan, or you may prefer the prepaid tuition alternative with lower fees. Either way, 529 plans are a great way to pay for college