Section 529 State College Savings Plans, also known as Qualified State Tuition Plans or 529 Plans, are state sponsored college savings investment programs that qualify for special tax treatment under section 529 of the Internal Revenue Code.

There are two types of 529 Plans:

1. Prepaid tuition plans allow you to lock in the cost of future tuition at in-state public colleges at current prices;
2. College savings plans allow you to set aside savings specifically for future college tuition in a tax-exempt 529 Plan investment vehicle.

A 529 Plan is considered a parental asset, and will not affect a beneficiary's (student's) need-based financial aid assessment. You choose investment options, and retain ownership and control of the account until it is used to pay the student’s college expenses. Consider the following:

• Interest rate. Not applicable.
• Fees. Not applicable.
• Credit eligibility. Not applicable.
• Tax considerations. Earnings and funds withdrawn for qualified education expenses will not be subject to income tax.
• Contribution amount—annual. For prepaid tuition plans, the annual contribution limits are set by each state.
• Contribution amount—lifetime. Lifetime contribution limits are established by each state.
• Contributing for all your children. It can take many years to save enough money in 529 Plans to cover every child for all their years of college.
• Contributing for school-related expenses. Cannot finance expenses in excess of cost of attendance, such as a commuting vehicle, travel home, furniture, and appliances.
• Deferment and forbearance clauses. Not applicable.
• Repayment. Not applicable.
• Repayment plan options. Not applicable.
• Liquidity, emergencies, and other expenses. Funds set aside in 529 Plans are not easily available to use for emergencies or other purposes.
• Lost retirement income and interest. Funds invested for the sole purpose of financing college cannot be used later in life when you need them for retirement income.

Every state offers this plan, for more information visit your state’s website or College Answer's State Resource Search.

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