Student moving into dorm.

If you're worried about saving up for your children's college education, start a 529 plan while they're still young.

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Next to saving for retirement, your biggest financial challenge is probably saving for your kid's college education. How do know how much to save? How much will a college education cost? What if you save all of this money and then she decides to tour Europe instead of going to college? Can you cash in the account and take that dream vacation you and your spouse have been thinking about? That depends on how and where you've stashed the money. Luckily, today there are several flexible ways to save for future tuition costs, including opening a 529 college savings plan.

A 529 college savings plan is a very simple way to save money for your kids' (or anyone else's) college education. The benefits are tremendous. Here are some of the heavy hitters:

  • You pay no federal taxes on the account's earnings, and there may be state tax benefits as well.
  • The child doesn't have control of or access to the account -- you do.
  • If the child doesn't want to go to college, you can roll the account over to another family member.
  • Anyone can contribute to the account.
  • There are no income limitations that might make you ineligible for an account.
  • Most states have no age limit for when the money has to be used.

[source: Securities and Exchange Commission].

In this article, we'll look at the rules for 529 Qualified State Tuition Plans. We'll explore the difference between this savings vehicle and some of the other traditional education savings methods and see why this plan might be the best option.