There are many misconceptions about the 529 college savings plan. This tax-advantaged savings plan is a great option for saving for college expenses; yet more than 70% of Americans are unfamiliar with the advantages it presents.
College costs – as well as student loans – are on the rise. The average in-state college tuition, room, and board bills at $20,770, while private college costs are nearly $188,000. It can take years to pay off student debt or college loans. Parents (or grandparents) who own a 529 plan are making a smart investment in their student’s future.
To clarify some of the confusion around the 529 plan, read our guide on who should own the 529 plan, the tax benefits and types of plans available, as well as how to set one up.
The 529 Plan: Background
The 529 plan is an education savings plan that is sponsored by a state or a state agency. It’s named after Section 529 of the Internal Revenue Code (IRC) which authorizes tax-free status for “qualified tuition programs.” The section was added after Michigan established the first prepaid tuition plan, the Michigan Education Trust, in 1986. Continue reading