The 529 Plan

The 529 Plan (named after its section number in the IRS code) is a savings plan for college education. You have a couple of options when you open an account.

• One option lets you prepay tuition at a qualified educational institution at today's tuition rates (see below).
• Another option lets you save money in a tax-deferred account (earnings only) to be used to pay for education at future tuition rates.

The idea, with either option, is that the investment earnings will grow to meet the higher costs of future education. The savings account option is typically considered the more attractive of the two and is what we will focus on in this article.

The 529 plan is a state-sponsored investment program. That is, the state sets up the plan with an asset management company of its choice, and you open a 529 account with that asset management company according to the state's predetermined plan features. You are the owner of the account, and the child for whom the account is set up is the beneficiary. You won't deal directly with the state, but rather with the asset management/investment company.