College Savings 529 Plan - Never Too Late To Start!

When looking at a College Savings 529 Plan, there a some glaring advantages and a few disadvanges as well. Here, we'll take a look at what 529 Savings plans are, who is eligible to start one, and what the pluses and minuses are. Hopefully, you will gain a better understanding of how to save for college and offset some of those rising tuition costs.

A College Savings 529 Plan is designed to work and perform best when started at an early age, like most investments. Once your child receives a social security number, you can begin to put money away for college in the form of a 529 Savings Plan. Depending on what state you live in, there should be a few options available to you.

One thing to keep in mind is that in order to take advantage of some tax breaks, you will need to be enrolled in a 529 Plan that is specific to your state that you live in. Some plans are open to out of state residents, but it is better for you to search in-state plans due to scholarship, grant and other calculations when it comes to tax season.

Next, let's take a look at the types of 529 Savings Plans and figure out which is best for you!

There are two types of College Savings 529 Plans: Prepaid Tuition and Savings

The Prepaid Tuition Plan allows the investor to purchase tuition credits at today's current rates. This allows you to "lock in" current tuition prices so that the inflation will not have any effect on you. College costs are rising every year, so this is a great option. Also, this type of plan is not tied to the stock market, so even when the economy is on a down swing, you will still be in great shape with your College Savings 529 Plan.

On the other end of the spectrum, 529 savings plans are tied to the stock market and economy. So, the fund's growth is based on market performance and could fluctuate depending on how the fund is earning. Most are part of a mutual fund, so if the fund or funds are not performing well, then neither is your 529.

Who can get a 529 Plan?

Anyone is eligible to start a 529 plan, for themselves, or for their children. As stated before, most plans are started at an early age to maximize the benefits, but you can start one at any point in an educational career. However the later you start, the more money you will have to contribute in order to get the most out of your plan.

Money from a College Savings 529 plan can be used for tuition, school fees, text book costs, supplies and room and board at any accredited college, university or vocational school. However, be careful what you use the money for. There is a list of qualified education expenses and if you break the rules, you could incur a penalty, which could cost you thousands of dollars. If you are unclear on what qualifies as a qualified educational expense, play it safe and refer to the company that provided the 529 fund.

There are many advantages to the College Savings 529 plan.

First, there are state income tax deductions for all or part of the money that you have contributed to the fund over the past fiscal year. In other words, the money you put in is tax deductible which could offset some of your tax return costs if you are required to pay. In addition, the 529 plan grows tax-deferred and is exempt from any type of tax on that money because it is set aside for college and continuing education. So putting some of your savings in a 529 plan protects it from the "bite" that the government takes out of your income.

The second advantage is that the donor is in total control of the account. With the exception of students who open a 529 for their own education, the named beneficiary (or person who the fund is named) cannot remove any money from the fund without the main donor.

Another plus with regard to a College Savings 529 plan is that it is a really easy, hands-off way of saving for college. All you need to do is enroll by filling out the appropriate paperwork and you're off and running! Some funds may require a one-time fee or down payment to start, but otherwise all you would need is the social security number of your child, your bank information for direct deposit and that's about it. Once you set up direct deposit of funds, you can forget about it until it's time to withdraw the money for college expenses.

There are some other advantages to 529 Colleges Savings plans, but those mentioned are the best ones and will offer you the most for your investment dollar.

Although a College Savings 529 Plan is mostly a good thing, there are some disadvantages like any investment.

However, the pluses far outweigh the drawbacks in this case. The big one has to do with the FAFSA and your financial aid package from the Federal government.

In the eye's of the Feds, your College Savings 529 Plan is viewed upon as an asset that may affect the total amount or eligibility of your financial aid package. Without getting into numbers and percentages, what you need to be aware of is that your 529 may cause you to receive less money in financial aid and/or scholarships and grants. It's a big drawback and in a way it's a penalty for being smart and investing in your college education, but that's just part of life. Keep in mind that scholarships and grants don't require repayment, so that is a plus in your favor. Scholarship Points is a great, free place to search for scholarship money.

The bottom line is that you have some money for college, and for that you should be extremely grateful! There are many, many students out there that have nothing, have started saving late in the game, or never knew about a College Savings 529 Plan.