What is a 529 Plan?

What is a 529 plan?

A 529 plan is a tax-advantaged college savings plan designed to encourage saving for future college costs. 529 plans are created and operated by states or educational institutions to help families save for higher education expenses of a beneficiary such as one’s child or grandchild. Typically, a parent or grandparent will make a contribution to a child’s 529 plan. The number refers to a Section 529 of the IRS tax code. There are over a hundred plans sponsored by individual states: some states offer a tax benefit to residents and almost all plans are open to residents of any state.

What is the main advantage of a typical 529 plan?

529 plans offer tax advantages and potentially other incentives to make it easier to save for college. 529 earnings are not subject to federal tax and are qualified for all education expenses including tuition, fees, books, as well as room and board. All withdrawals from 529 plans for college costs remain free from federal income tax.

What types of 529 plans are available?

There are two types of 529 plans: prepaid tuition plans and savings plans:

Prepaid Tuition Plans allow for the pre-purchase of tuition based on today's rates and then paid out at the future cost when the beneficiary is in college. Prepaid tuition plans will keep pace with inflationary increases in college tuition by locking in future tuition rates at today’s prices.

Savings Plans are based on the market performance of the underlying investments, which typically consist of mutual finds. Most 529 savings plans offer a variety of investment options based on the age of the beneficiary. Risk-based savings plans are also available.

Does LEAF College Savings offer 529 plans?

LEAF College Savings does not offer 529 plans, but our college savings gift cards ensure that your contribution is securely transferred to an already existing 529 account.

Does LEAF College Savings recommend 529 plans?

LEAF does not promote any particular plan or provide any financial advice. From time to time LEAF may engage in co-marketing activities with individual 529 plans, but those activities are clearly presented as offers from the plans themselves.

Where can I learn more about 529 plans?

There are many good online resources that provide information about saving for college and specifically about 529 plans. We list a few that we think should be at the top of your list:

The College Savings Plan Network, or CSPN, is a non-profit affiliate of the National Association of State Treasures. Their website is excellent and easy-to-use, particularly the Getting Started section and the 529 Plan comparison tool.

The U.S. Department of Education offers a broad resource including information about grants and scholarships. The Department’s Federal Student Aid website provides additional information for many specific groups, such as children of military families. 

If you or your child is getting closer to applying for college, College Parents of America features several slide shows about financial aid and the process of applying for aid.

The Internal Revenue Service (IRS) 529 Plan: Questions and Answers is another resource that addresses tax related aspects of 529 plans.

Morningstar, the ratings agency, each year names what it believes are the best 529 college savings plans. Their ratings for 2012 include 27 plans which received Gold, Silver, or Bronze Morningstar Analyst Ratings.

Finally, don't forget to check out your own state's 529 website!