A Savings Account for College: The 529 Plan


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Have you heard about a 529 plan? It is a type of education savings plan that you can use to save for going to college or future tuition costs. Educational institutions, states and state agencies sponsor them. There are two types, a prepaid tuition plan and an education savings plan.

Prepaid Tuition Plan. You buy credits or units for schools (participating ones) for future tuition. Usually, these purchases cannot go toward room and board, and you cannot prepay for elementary or secondary school. If you do not use it at a participating school, you might get less money. In addition, if the plan is not guaranteed, you could lose money if there is a shortfall in the participating institution.

Education Savings Plan. This is an investment plan with more variety. You can save for tuition, room and board and other fees. These savings can be used at any school, sometimes those outside of the United States. Up to $10,000 can also be used to pay for tuition for a public, private, religion elementary, or secondary school. You can save using different investment options like mutual funds and exchange-traded funds.

In short, saving for college is a smart thing that many people either do not are unable to do because life hit before the plan to save did. If you have kids, or plan to go back to school, these are two ways to start thinking about saving for your loved ones and their future.

529 saving plans are not insured by the FDIC and are not deposits or other obligations of financial institutions and are subject to investment risk. Consulting with a financial advisor is recommended before making any financial decisions.