529 College Savings Accounts
College Savings Accounts are an alternative form of 529 education plan that is also an effective savings tool for college.
They differ from the prepaid tuition plans in several complementary ways and are ideal for parents who want a savings account that can increase in value faster than the annual increases in tuition.
A 529 savings plan is essentially an investment account that receives special tax benefits if the earnings are used to cover education expenses.
Advantages of 529 College Savings Plans:
- Earnings and withdrawals are tax-free
- Some states allow portions of contributions to be deducted from state taxes
- Unlike most prepaid tuition plans, withdrawals can be used to cover room, board, books and supplies, as well as tuition and fees.
- Funds can be applied to most pulic or private colleges and universities
- The parent remains in control of the account
- Large contributions can be made
- The beneficiary of the account can be changed at any time to another member of the family
Disadvantages of 529 College Savings Plans:
- Your investment is not guaranteed like a prepaid tuition account and could lose value
- Management fees tend to be higher than non-education investment accounts
- Unless extended by Congress, some tax benefits of the account may end after 2010
