Pre-paid College Tuition Plans

What is a 529 plan? I have heard people talking about it as a good way to save for children's college education. -- Thinking Ahead
Answer: A 529 plan is a great way to save for your children's education. Grandparents, relatives and even friends can also contribute to a plan. There are two types of 529 plans: prepaid tuition plans and savings plans. The prepaid plans let you pay at today's rates for future tuition. For example, if you buy a year's tuition now at a state college, it will pay for a year's tuition when your child is in college, even if the tuition rate has doubled. Typically, college savings plans build by investing in mutual funds.
Every state has a 529 plan. However, not all offer both types of plans. Prepaid plans are administered by both states and other organizations; however, savings plans are only administered by states.
You definitely should investigate 529 plans, as all withdrawals are exempt from federal taxes, and many are exempt from state taxes. You can purchase plans from any state. However, your own state plan may offer the advantage of matching grants and scholarships as well as exemption from state financial aid calculations.
Before choosing a 529 plan, it's important to do considerable research. You especially need to know the advantages and disadvantages of each plan. Be sure to study carefully the tax implications of both plans. You can find ratings of the various state savings plans at several Web sites, including www.finaid.org and www.collegesavings.org.