How to Use a 529 College Plan to Save for College

The 529 College Plan is one of the most popular ways for parents to save for college. It’s a tax-advantaged savings account that used to be known as the Education IRA. The 529 College Plan comes in many different forms, so understanding your options is important to investment success.

The first thing to do is choose a 529 College Plan. Most states have them, as do some independent financial institutions. Contrary to popular belief, you can use a state sponsored 529 College Plan to pay for education outside that state. The best plan is one to which anyone can contribute, one that can be changed between beneficiaries, and one with low fees and a lot of control over investments.

Next, you decide where to invest your 529 College Plan investments. A popular strategy is to start off with aggressive investments and then back off into more conservative options. This allows your 529 College Plan to grow more at the beginning, but to take less risks as college draws nearer.

Make sure you know the limits of your 529 College Plan. You can never contribute more than $300,000 in a lifetime, although the account can get bigger than that with interest. With most state plans, anyone can contribute, even if they’re out of state. A 529 College Plan can be a great way to get grandparents, aunts, uncles, and family friends to contribute to your child’s college savings as a gift. Sometimes your contributions to the plan are tax deductible, and you might get state tax benefits for having an in-state plan.

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