529 Plans encourage saving for future college costs

What is a 529 plan you ask? A 529 plan is simply one of many ways offered by our lovely IRS that allows us to invest and save for college needs tax free. So why is this so neat or any different than simply deducting educational expenses when you incur them? True, you can deduct (currentlythe IRS allows qualifying taxpayers to deduct $2,000 – $4,000 of qualifying tuition expenses) the expenses from your taxes down the road, or hope you don’t make too much to qualify for a tax credit. But, why miss out on the opportunity to have compound interest working for your investments. Of course, you must use the money for college needs or pay a 10% fine and the taxes you would have had to anyways. Now understand, there are two different ways to use this plan, invest on your own or “lock-in” rates with particular schools. Here is a summary below of the two different ways to use this plan. In addition, here is the SEC on 529s.

Prepaid Tuition Plan	College Savings Plan
Locks in tuition prices at eligible public and private colleges and universities.	No lock on college costs.
All plans cover tuition and mandatory fees only. Some plans allow you to purchase a room & board option or use excess tuition credits for other qualified expenses.	Covers all “qualified higher education expenses,” including: Tuition Room & board Mandatory fees Books, computers (if required)
Most plans set lump sum and installment payments prior to purchase based on age of beneficiary and number of years of college tuition purchased.	Many plans have contribution limits in excess of $200,000.
Many state plans guaranteed or backed by state.	No state guarantee. Most investment options are subject to market risk. Your investment may make no profit or even decline in value.
Most plans have age/grade limit for beneficiary.	No age limits. Open to adults and children.
Most state plans require either owner or beneficiary of plan to be a state resident.	No residency requirement. However, nonresidents may only be able to purchase some plans through financial advisers or brokers.
Most plans have limited enrollment period.	Enrollment open all year.