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
- 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.
- 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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