Use 529 Plans To Help Pay For College

It doesn't take a college degree to realize higher education isn't getting any cheaper. Annual increases at colleges across the country include double-digit percentage tuition, and families increasingly rely on college scholarships and financial aid to meet rising costs. Sadly, many families underestimate the costs involved, or overestimate the amount of college scholarship money available. While rising education costs may be out of your control, your ability to plan for a college education is not. You and your family can start saving today, taking advantage of a state sponsored 529 plan. A section 529 plan, also known as a qualified tuition program (QTP), is an education savings plan run by a state or educational organization and designed to help you put money aside for college. 529 plans fall into two main categories: prepaid college tuition and savings accounts. Every state now offers a 529 plan.

Prepaid tuition: Pay for college tuition at today's prices. For example, if annual tuition at State Tech cost $8,000 this year, pay for one year of college now or over time using a 529. When you enroll, regardless of tuition costs, one year of college will already be paid up.

Savings account: Place money into an account where it can gain interest and grow. Typically, you won't pay taxes on the interest gained as long as you use the money in the account for higher education.

Advantages offered by 529 plans include:

Income tax breaks. 529 plan contributions are not deductible on a federal tax return; however, the investment growth is tax-deferred. This means your family can save money for college, and make payments toward tuition, without the obligation to pay taxes on interest earned by the plan. Also, some or all of the distribution may not be taxable, depending on what other college financial aid or education scholarships are involved. You may qualify for local tax breaks too.

The money can only be used for education. The 529 beneficiary can't make withdrawals independently; the money must be used for qualified college expenses. For students, this removes the potential distraction of spending the money on late-night meals.

Contributing to a 529 plan is easy. Select a plan, fill out a straightforward enrollment form, invest the money through automatic deposits, sit back and relax. The plan takes care of the investment, the assets of which are managed by the state treasurer's office or an outside investment company.

Anyone can do it. There are no eligibility requirements and large amounts of money can be invested. There are usually no income limitations and no age restrictions; family members can start saving whenever they want. Also, anyone returning to school can qualify for this type of financial aid, not just first time college students.

Savings on inflation. Like everything else, college tuition continues to increase, sometimes by double-digit percentages from one year to the next. Using the pre-paid tuition plan, you can skip these increases by paying for college at today's prices, then cashing in your semesters when you're ready to enroll. If you opt for the savings plan, you can make up any shortfalls in college expenses not covered by education scholarships or other college financial aid your student may have been awarded.

How do I enroll? Enrollment is easy. Simply contact the proper office at your state. The National Association of State Treasurers has created a website with a full listing of what your state offers, including contact information and plan details. Visit http://www.collegesavings.org to get started!

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