MONEY OBEDIENCE

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529 plans are "qualified tuition plans." These plans were set up by the federal government to encourage savings for future college expenses. The incentive is mostly in the form of tax advantages, since your contributions to a 529 plan are tax-deductible. In addition, the return you get on those savings and investments is not taxed, either. These tax advantages make it very compelling to use 529 plans when saving for college. 529 Plans got their name from Section 529 of the Internal Revenue Code.

As long as you use the accumulated savings in a 529 plan for "qualified college expenses," all withdrawals are also exempt from federal income tax. "Qualified college expenses" are expenses such as tuition, room and board, books, and supplies. Savings of a 529 plan can be used for other members of the beneficiary's family besides the beneficiary you designated when you first set up the plan. If you make withdrawals but do not use them to pay for college expenses plans, your withdrawals will be taxed and you may also have to pay a 10% federal tax penalty.

Many states have organized 529 plans for their residents (and for non-residents) to avoid some of the high costs private entities charge for running such plans. Each state's plan is different, which is why it is important for you to educate yourself about 529 plans.

In many cases the easiest solution is to participate in your state's 529 plan, especially if your state gives you tax incentives when you participate in an in-state 529 plan. You may also want to check with a tax professional about the tax implications for you, since other tax-related issues (like gift-giving or issues related to the state tax for your particular state) may come into play.

To give you a head start, I provided some links below for the websites of various states 529 plans. Some states sponsor more than one 529 plan. If that is the case, the links below will generally go to the lowest cost option in your state. If your state does not offer tax advantages when saving in the state sponsored 529 plan, it is not included in this list. You may want to check the links to other websites ("Other Resources") at the bottom of this list. These websites discuss and rate 529 plans available to all investors regardless of location.

Other Resources:
news.morningstar.com/articlenet/article.aspx?id=187673
www.savingforcollege.com/kiplinger/plan_details.php#topplans
money.cnn.com/pf/features/college_guide/table_best.html