Parents, Open a 529 College Savings Plan for Your Child Today

Affording college has never been more difficult for students or their parents. Tuition is higher than ever, and many families just can’t come up with that kind of money — even with scholarships and substantial family finance planning. A 529 plan is a state-operated savings plan designed to help families set aside funds to me sure they can afford tuition later down the road. There are two different types of 529 plans:

1. 529 Prepaid Tuition

These plans allow college savers to purchase credit for future tuition at the qualified in-state school of their choice. It locks in tuition prices — meaning that even if the college or university hikes its costs, your child or student won’t have to pay those higher costs. These plans are often backed by the state and are guaranteed to help the beneficiary pay for college.

There is an age limit on prepaid tuition plans, though, which means that the beneficiary can only make use of the plan if they are under a state-set limit. Prepaid tuition plans also have a limited enrollment period.[1]

2. 529 College Savings

College savings plan regulations are less strict than those of prepaid tuition plans. For starters, they don’t require that the beneficiary go to school in their home state: your family can be from Michigan and decide that you want to go to school in Texas, and your 529 plan will carry over. Almost every state offers a 529 plan, although the details can vary from state to state. The true deciding factor is whether or not your school is eligible.

Unlike prepaid tuition plans, the money your family puts away in a college savings plan can be used to cover a variety of expenses in addition to tuition, including room and board, books, and computers. There is also no age limit on beneficiaries for the college savings plan, and there’s no limited enrollment period.

College savings plans are not backed by the state, though, which means that your investment isn’t guaranteed to grow. They also do not lock in tuition costs, so if tuition prices skyrocket, there’s no assurance that your college savings plan will cover the cost of college.[1]

Benefits of Both Plans

The good news is that applying to and maintaining either of these plans is pretty simple. Both offer these advantages:

– Tax-deferred investment growth
– Tax-free distributions
– Donor controls the funds
– Easy to complete enrollment form
– Mail, online, or automatic deposits[2]

Before You Invest, Be Aware

While you can transfer your money among qualified beneficiaries, you can only make exchanges and reallocations once per year.[3] It’s also important to be aware that rules for switching beneficiaries can differ on a state-by-state basis.

Be sure to talk with a financial advisor or tax professional before investing in a 529 plan. Each state operates its program differently. It’s important to understand the specifics before putting any money down or making drastic changes to your plan. With the right strategy and financial planning, you can make college affordable for you and your child.

Donna Parshall writes articles for Allied Cash about online commerce, responsible borrowing, investment, and budgeting. Click here to learn more about Allied Cash is a responsible payday loans and cash advance lender.


[1] “An Introduction to 529 Plans.” U.S. Securities and Exchange Comission. 08 August 2012: n. page. Web. 12 Oct. 2012..

[2] “Name the top 7 benefits of 529 plans.” n.d. n. page. Web. 12 Oct. 2012. .
[3] Hurley, Joe. “Monthly top tips.” 27 March 2008: n. page. Web. 12 Oct. 2012..

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