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What is a 529 Plan?

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529 plans (also referred to as qualified tuition programs or Section 529 plans) are tax-advantaged savings plans created to assist with paying for education related expenses. Initially, 529 plans were limited to post-secondary education costs, however, in 2017 coverage expanded to include K-12 education and subsequently in 2019, apprenticeship programs.

What are the main types of 529 plans

  1. Savings plans are plans that grow tax-deferred, and withdrawals are tax-free when used for qualified education expenses. This type of plan works similarly to a Roth 401k or Roth IRA by investing your after-tax contributions in mutual funds or similar investments. The 529 savings plan offers a broad range of investment options from which to choose and will invariably go up or down in value based on the performance of the investment options chosen within the plan.
  2. Prepaid tuition plans allow the account owner to secure today’s tuition cost in advance at designated colleges and universities. These plans allow you to pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private or out-of-state colleges. Note, that the Private College 529 Plan is a separate prepaid plan for private colleges, sponsored by nearly 300 private colleges and universities.

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