How do 529 Savings Plans WorkIf you are planning to attend college in the future, set aside some time and learn about 529 savings plans.

There are a variety of different ways that young college students, their parents and adult re-entry students fund their college careers, but choosing the most inexpensive options are very important. More and more college students are digging themselves into insurmountable piles of debt before they even graduate and find full-time employment. This creates perpetuating debt that is difficult for the average person earning the average salary to climb out of.

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A 529 savings plan is a special savings plan designed just for education. Read on and learn what you need to know about this savings vehicle.

Who Can Open a 529 Savings Plan?

Saving for college can be a financial challenge, but it is easier due to the fact that anyone can open a 529 savings plan. Also known as a 529 Qualified State Tuition Plan, the investment vehicle is designed to help parents and adult students put money away and earn tax-free interest in the account. The savings plan is offered by the state or by some specific educational institutions, and anyone with a social security number has the option to open an account.

Different Types of 529 Plans

There are two very different types of 529 investment vehicles that you can choose from. It is important to understand the difference between the two so that you are not restricted with who can use the funds you have saved. One option, the one offered through educational facilities, is to allow people to prepay tuition at a current rate to avoid future inflation. While this option is restrictive, it does help when you are sure that your child wants to attend a specific school because the rising costs of tuition will not affect you.

The second type of 529 savings plan lets you invest your money in a state sponsored account where the money earns money tax-free when it is used to pay for tuition. The state will set up an account with a asset management company, you will be the owner of the account, and the person attending school in the future will be the beneficiary. It is important to realize that each state has a variation of rules pertaining to 529 plans and rules. You should know state rules for buying plans and using them prior to opening an account.

What Are the Benefits of 529 Savings Plans?

There are a variety of benefits related to opening a 529 plan. All of the earnings in the account are exempt from federal tax when they are used for a qualified expense. Some states will also allow account holders to deduct a portion of their contributions from state filing to reduce tax brackets. This allows you to reduce your taxes while you still save money for higher education.


Funding college becomes a challenge for some, but planning ahead makes covering the expense of attending school much easier. If you are looking for ways to save for your family in the future, consider the benefits of a 529 plan. Learning how 529 savings plans work, review the restrictions of state-sponsored accounts, and earn interest that the government cannot tax to save for school for a better future.

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