Parents who want to start saving for college for students can invest money in the 529 plan. This is a state-sponsored savings plan for education that provides tax breaks. It allows parents to save the money needed for their child’s college education.

What’s a 529 Plan?
A 529 plan is a great option for saving for college for students. It is officially known as a qualified tuition plan. It is a plan offered by state governments to save money for a child’s college education without having to pay taxes.

There are plans offered by private institutions and agencies. While these plans are also helpful in saving money, there are no tax breaks on these plans. This is an important consideration for parents. Investing money in such plans will mean they cannot get tax breaks.

Prepaid Tuition Plans
Prepaid tuition plans are one of the two types of 529 plans. There are plans where you prepay for college education in advance. These are plans where many universities and colleges participate. You can prepay the cost of a college education many years before your child starts studying. Once your child goes to college, he/she can join any of the colleges/universities in the plan with most of the tuition fees having been prepaid. This is beneficial as it protects you from fee hikes. It, however, covers only tuition fees and not living expenses.

Education Savings Plans
These are investment plans wherein the money you saved goes into an investment account. This money is invested in debt funds, exchange-traded funds, or mutual funds. It is up to you to decide how you want to save money. If you don’t mind risk, you can put more of your savings in mutual funds, else you can take a balanced approach. Apart from tuition, this plan creates funds that can be used for living expenses.

Which Plan to Choose?
While prepaid plans protect you against fee hikes, it is limited only to participating institutions. The money saved can be used only for college education and not for a school education or living expenses. Education savings plans are more beneficial as the money saved can even be used for K-12 education. It can be used to cover living expenses.

Benefits Of A 529 Plan
The main benefits of choosing a 529 plan are

• It allows you to start saving for your child’s education early.
• It is not just the parents who can contribute, anyone can contribute through the “Gift of college” and “LEAF” programs.
• You can decide how you want to use the money saved. Depending on your risk appetite, you can manage your savings to generate sufficient money by the time your child is ready for college.
• Most states provide tax exemptions for the money you invest. This is applicable only if you invest in a plan directly offered by the state government.

529 plans are a great way of saving for college for students. The article presented complete information on 529 plans that would help parents start saving for their child’s education.