It's never too early or too late to start saving; the important point is to put a plan in place. Starting a 529 plan early and adding to it regularly can make the difference between building a college nest egg and suddenly having to find the money to pay a large bill when your child graduates high school and is accepted to college.1
If you're considering investing in a 529 plan, make sure that you read plan's offering materials carefully to make sure that it will meet your - and your student's - needs.
What is a 529 plan?
A 529 college savings plan is a tax-advantaged program created to help families like yours save for a child's future education expenses. The name "529" comes from the Internal Revenue Code section that specifies the plans' tax advantages.
General characteristics of 529 college savings plans
- State-sponsored: Many plans offer a state tax incentive to resident taxpayers
- Open: You can generally enroll in any 529 plan, regardless of where you or your beneficiary lives2
- Flexible: A student can attend any eligible school in any state3
- Tax advantaged: You can withdraw your assets tax-free for qualified higher education expenses, like tuition, mandatory fees, books, supplies, and equipment, and certain room and board costs4
- Direct, advisor-sold, prepaid: Some 529 plans are available direct to the public; some are available only through advisors; some states offer a "prepaid" plan that lets you pay for college at today's current prices to be used in the future
1 A plan of regular investment cannot assure a profit or protect against a loss in a declining market.
2 You should consider before investing whether your or the beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program.
3 A few 529 plans (like certain prepaid plans) may have residency requirements; be sure to check with the plan before enrolling.
4 Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.