What is a 529 Plan?
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A 529 plan is a tax-advantaged savings/investment plan designed to encourage saving for the future expenses of a designated beneficiary (typically one's child or grandchild). The plans are named after Section 529 of the Internal Revenue Code and are administered by state agencies and organizations.
Types of 529 Plans
529 College Savings Plans
There are two types of 529 college savings plans: prepaid tuition plans and savings plans:
- Prepaid Tuition Plans allow for the pre-purchase of tuition based on today's rates and then paid out at the future cost when the beneficiary is in college. Performance is often based upon tuition inflation. Prepaid plans may be administered by states or higher education institutions.
- Savings Plans are different in that your account earnings are based upon the market performance of the underlying investments, which typically consist of mutual funds. Savings plans may only be administered by states.
529 (A) Achieving a Better Life Experience - ABLE Plan
ABLE accounts allow eligible individuals the ability to save for qualified disability expenses and provide a saving/investment tool that are excluded from income and/or asset calculations for public assistance programs.