With the increase in the educational costs, it is true that by the time our children are ready to join the main stream job oriented educational courses, the cost will be so high that parents will feel the pinch in their pockets. It is therefore best advised that we start saving for the future of our children as early as possible and in a way that would help us get the highest returns. 529 plan is one such way in which a parent can plan to save money for the education of his child starting from a very early stage.
What is a 529 plan?
A 529 Plan is an educational investment plan which is being operated not by private lenders or money marketing institutes, but by a federal body or educational institution. The plan has been tailor-made to help families set aside and save funds on a daily or monthly basis in order to meet the future expenses that might come up when their children plan to opt for higher studies. The plan is named after Section 529 of the Internal Revenue Code. Section 529 of the Internal Revenue Code came into effect in the year 1996, keeping in mind the need for a plan that would help parents to save for their child’s college expenses early on in life.
Irrespective of where the student chooses to study, 529 Plans can be used to meet costs of recognised colleges all over the nation. Therefore the choice of the school does not affect the 529 savings plan.
Types of 529 savings plan
There are two types of 529 college savings plan and they are-
- College savings plan
The college saving plan has an upper threshold. You can save up to that particular limit. The plan manager handles the whole amount that parents contribute for saving. The plan manager provides the concerned investors with a list from which they can choose the investment plan that suits their monetary requirements. Here the plan manager has a role to play in guiding the investors towards profit earning investments.
Although the risks are high in this type of 529 college savings plan, if properly invested, the gains that can be reaped are also very high.
- Prepaid tuition program
Under this program, all the eligible expenses that a student might have to incur are prepaid at any of the recognised institutes in the nation. The prepayment guarantees the investors the fees for up of two semesters, irrespective of the cost.
Although this plan has higher risk free returns but there are certain disadvantages of the plan. This are-
1. Contributions made by the investors are limited to only the amount that will be required to meet the educational costs of the student for a particular course.
2. The beneficiary will be granted the benefit of availing the fees from two semesters only in colleges and institutes that have been selected previously listed and authorised by the plan manager. In case a student takes admission in a college outside the list then he will be paid only the amount of money that his parents had invested year’s back.
