529 Savings Plan - What It Can Do For Your Child's College Education

There was a time when higher education was only for the richest but today it has become a goal for most governments to make it accessible to as many people as possible. Although higher education has become more accessible, the fact still remains that it's expensive and not everyone can afford it. So there are financial solutions such as a 529 savings plan to help those who are less fortunate.

First you probably need to understand what it's a 529 college savings plan and see what types of plan are available. As a parent you're probably wondering what are the benefits and how the plan will work. Once you understand what a 529 plan is you will definitely see why saving for your children has never been more easier. The only question you'll then have to ask is: "Which are the best 529 savings plans?"

Basically "529" is the section of the Internal Revenue Code in the United States. Also known as "qualified tuition plans", these plans are tax-advantaged savings designed to encourage early savings for future college costs. Usually sponsored by states, state agencies or educational institutions this savings plan means that you invest earlier in your children's college fees so you don't have to pay more when your child starts college. It also means you do not pay inflation difference or any kind of price difference when your child will start college if you paid five years earlier for example. Depending on your situation, there are two plans available.

The first 529 education savings plan is known as pre-paid tuition plans and as the name states it, you basically buy units or credits at participating colleges or universities for future use. In most cases you will want to buy credits for the admission fees and probably the books but your prepaid tuition can also be used for rooms on the campus for example.

The second plan is known as college savings plan and is more like an investment than a purchase. This option is more available and includes many different types of investments that will be beneficial to the student also known as the beneficiary. Although savings can be more generous, you have to remember these are investments which means there is a certain level of risk involved but you don't have to worry so much because the investments are usually more conservative than aggressive. Saving money and taking an early lead are not the only benefits of the 529 plan.

Unlike ordinary mutual investments a 529 savings plan does not require you to pay taxes on the account's earnings. It is also a tax shelter that can be contributed by more than one member. Although you have one beneficiary, you can always rolled the account over to another member if the beneficiary does not go to college or university. In case your children receives a scholarship, you probably won't need the money for the education anymore so you will be allowed to withdraw any unused money from the account before its time without paying any penalties except the taxes of course. Since you, as a parent will probably be investing for your children you may want to make sure that the money is kept safe.

Until the student goes to college or university not only are you a contributor to the account but you are also in control of the account. This means your children and me be the beneficiary but he or she will not be able to use the money until they go to college or university. Unless your child has gone through money-management 101 I think it's in the best interest of everyone if the parent is controlling the money that will send them to college for them.

If you have extra money investing earlier in 529 plans is a great way to prevent disasters when your child will go to college or University. Many parents may think they have everything prepared for the child but unexpected events may occur at the last minute and when that happens do you want to be prepared or not? Like they say, it's easier to prevent than to fix.

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