You may have heard about this thing called a “529 Plan” as it relates to saving for college. But what is it? Is it for you or your parents? Do you need one?
A 529 Plan is basically an educational savings account similar to what a 401(k) or IRA is for retirement.
There are several variations of 529 plans depending on what state you live in but the two mains concepts are prepaid or savings.
Prepaid is exactly that. You can pay for college at today’s rate even though you may not attend classes for another several years. A prepaid plan seems like a pretty solid idea considering that the cost of education (public college tuition is up 6.4%) is going up faster than the cost of inflation (inflation averages around 3%). The downside to prepaid 529 plans is you can usually get a better return on your money if you invest it (of course it depends on how long you would leave the money in for). If the cost of education is going up at around 6% and you could earn 10% by investing it, it would make more sense to invest it, right?
So if you wanted to invest it instead, then you have the option of a 529 savings plan. As we mentioned, there are a lot of different types of 529 savings plans, some that offer you the opportunity to control how the money is invested and others that just invest the money for you. All of that depends on your state. To learn more about the 529 Savings Plan for your state, go to this link and click on your state: 529 Plans By State.
YOUR 2 CENTS: What other questions do you have about 529 plans?
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