Types of 529 Plans

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This video from ABC News reviews some key details about 529 plans. These plans help families save for students' college education expenses in advance. There are two different types of 529 plans, and both offer their own pros and cons.

College savings plans- These are state-sponsored accounts and you can use funds at any college in the country. If your state does not offer an account, or if another state provides better tax-incentives, you can invest in another state's plan. There is some risk in that these plans involve investing the savings in mutual funds, which can have gains and losses overtime.

Pre-paid tuition plan- This system allows you to purchase tuition at today's in-state college costs. Essentially, parents are locking in a college price now and paying into an account until the time comes for the student to go to college. If the student does not go to a college in your state, then the parent can withdraw the funds to be used at an out of state school. However, parents may not get the full benefits when they use the savings in another state. If the student does not go to college, the money in the account and the tuition guarantee can be given to a close relative, like a younger sibling.

READERS, what do you think?

Which plan sounds best to you?

Reference:

Hobson, M. (2011, January 1). Quick Tip: 529 Plans. [Video file]. ABC News. Retrieved from

http://abcnews.go.com/Video/playerIndex?id=12571145.