A 529 Plan Has Savings Benefits for College

The cost of higher education is rising faster than the rate of inflation in the United States, and that means many parents are primarily focused on the best way to save money for their child's educational future. One method, 529 savings plans, offer parents just such an opportunity, with enough flexibility and tax benefits to make saving both easy and advantageous for concerned parents. While there is also a national plan, each state has its own unique plans in place for college planning.

529 Plans are Flexible

There are many ways to use a 529 college savings plan to prepare oneself financially for a child's higher education pursuits. The most popular type of plan is known as a "savings plan," and it places the entire amount of one's savings into a shared investment fund, such as a mutual fund. This savings plan works much like a traditional 401(k) plan and the money placed into it can be used at any state-funded or private university.

The second type of plan is known as a "prepaid plan," and all funds placed into this type of plan go directly toward paying for college at a state-funded public college or university. These funds can be used to pay part of all of the costs of an in-state education. For private schools there is the "private college plan" which performs the same task at any private institution in the United States.

The best part about these two plans is that they're flexible, and a parent with a 529 plan can make changes to their plan at any time, switching between the numerous savings options available. Although these changes are limited to once per year, there is no limit on the number of yearly changes a parent can make while saving for their child's higher education. It is one way to get started early, and perhaps change gears as a child's college dreams come more clearly into focus.

Parents Retain Control

Parents, or whoever is considered the donor of the savings plan, retain complete control at all times, meaning the funds are never disbursed directly to a student for their indiscriminate use. That's a safe way for parents to know that every single dime of their savings will be used solely for educational pursuits and not for any discretionary items the student may wish to spend it on, such as cars, music or clothes.

Big Deposits, Few Limits

Donors can put up to $300,000 in their savings plans, depending on which state they reside in. And there are no income limitations to open and maintain a 529 savings plan for a future college student, nor are there any age restrictions when opening an account. In fact, a young student could even open his or her own savings account and begin the process of saving for their own education.

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