As the school year draws to a close, you may be reminded about the future. Perhaps you’ve been setting aside some money for your child or grandchild in hopes to help fund their college tuition one day. One great option for saving for tuition might be the 529 plan. This tax-advantaged account is a great way to start setting aside funds for your loved one for them to use. Today we’ll be covering the two types of 529 plans you can find.
When using a prepaid 529 plan, savers or account holders are able to pay for tuition and other mandatory fees in advance at participating colleges and universities. This option usually does not allow for room and board to be paid for in advance, and secondary or elementary schools are not supported. Most of these plans are sponsored by state governments but aren’t by the federal government.
When considering a prepaid plan, it’s important to consider that not all states guarantee money prepaid into tuition. Not all colleges and universities participate in this type of plan as well, so choices for beneficiaries will be more limited with this plan.
When using an education savings 529 plan, you are actually opening an investment account for the beneficiary (student) to use in the future for qualified expenses, such as room and board, mandatory fees, and tuition. This type of account can be used to pay up to $10,000 per year for tuition at and public, private, or religious elementary and secondary schools.
An education savings plan differs from the previous prepaid option considering this is an actual investment account. By using this type of 529 plan, you are able to choose from several investment portfolio options, which can include different mutual funds and exchange-traded funds. It’s important to bear in mind that with these types of accounts comes a certain amount of risk. Depending on how close the beneficiary is to graduating high school, another type of plan may be worth considering.
Planning for your child or grandchild’s future can take some careful thought and consideration but is a great way to invest in their future, quite literally! Call your financial professional today for more information on 529 and other educational financial plans.