Hemaja Burud

What is a 529 Plan?

A federal tax-free college savings account is known as a 529 plan.

Although there are financial aid options available, the majority of families pay for college using parental income and savings, 


and 37% of families polled for Sallie Mae's How America Pays for College report using a college savings plan like a 529 to do so.

These plans, which take their name from Section 529 of the federal tax code, frequently offer in-state residents tax advantages.

Typically, a child, grandchild, or younger relative is the beneficiary. You can open a plan and name yourself 


as the beneficiary even though parents and grandparents most frequently use 529s for the benefit of children.

Opening a prepaid tuition plan allows users to lock in current tuition costs rather than rising future costs, which typically occur every year.


Prepaid plans' declining popularity, however, might be partially attributed to a few specific drawbacks.


For instance, funds deposited into a state-run prepaid plan may only be used to cover tuition and fees at public colleges and universities located within the state.


As of 2019, borrowers of student loans can also gain from 529 plans by repaying their debt with funds from their 529 savings accounts.


Particularly if you reside in a state without an income tax, avoid limiting yourself to just what your state has to offer.

You can choose your plan using one of two methods, and each plan option features a unique mixture of funds.

The first option, which is age-based, automatically modifies your asset mix as your student approaches college age to become less risky.

Even within these two categories, you can frequently select the plan that is most appropriate for your level of risk tolerance or your particular goals.