Investing in your children’s education

The United States has the best universities in the world. People come here from around the world to attend these schools. And we dream of our children and grandchildren having the opportunity to improve their minds and lives in the same way. However, during the past decade, the cost of a college education has increased at a rate of 6 percent per year, making planning for college more difficult. The 529 college fund can help.

In 1996, Congress created Section 529 of the Internal Revenue Code and called it the “Qualified Tuition Program.” It covers plans operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college for a designated beneficiary, such as a child or grandchild.

There are two basic plan types: prepaid tuition plans and savings plans. Each state has its own somewhat unique plan. States are permitted to offer both types. A qualified education institution can only offer a prepaid tuition plan.  Your state’s 529 plan may offer incentives to win your business. But the market is competitive and you may find another plan you like more. Be sure to compare the various features of different plans.

Pre-paid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Whoever purchases the 529 plan is the custodian and controls the funds until they are withdrawn.

College savings plans generally permit a college saver to establish an account for a student for the purpose of paying eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder.

Take advantage of this great opportunity to start a college fund for your child or grandchild.

For more information about these plans, visit the IRS website or the SEC website.


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