True or False?
There is only one type of 529 plan.

False! Amy Irvine, financial planner at the Rooted Planning Group, explains what’s really possible.


True or False? There is only one type of 529 plan.

Amy: Many of my clients have this misconception. The truth is there are multiple 529 plans. I’ve had a few clients hesitate to put money in a 529 plan because they thought the only option is the prepaid state plan, and they aren’t sure if their child or grandchild—niece or nephew—will go to school in their home state.


What are the various types of 529 college savings plans?

Amy: The good news is there are more options than most people think! Let’s dig into the different types of plans:

  • State College Savings Plans: These are plans that act sort of like Roth IRA. Since you save the money, the growth is dependent on the underlying investments. And, if you use it for qualified expenses, you pay no tax on the withdrawals nor the earnings. You can use this money for any college.
  • State Prepaid Tuition Plans: Most of these plans are more like a contract between you and the college. Depending on the plan, you can either buy a certain number of semesters or so many units (redeemable when the student attends college). Usually, there are residency requirements too. If you or your beneficiary decide to go to college out of the state, not all is lost, but your return on investment is generally limited. If you end up moving out of the state, the beneficiary can return to the state and use the funds, but they will be charged out-of-state tuition, so you may owe some out of pocket in addition to what was prepaid.
  • Private Prepaid Tuition: These are not state specific but more school (or group of schools) specific. Programs like Private College 529 allow you to buy Tuition Certificates, and you don’t have to select a college or university until the time is right. The participating schools actually own the plan, and they guarantee the tuition amount you prepay. Similar to the state prepaid plan, if the beneficiary decides to go to a school not on the list, that doesn’t mean you are out completely. You can get your money, but the return on the investment won’t be great.


How can I get started?

Amy: Planning for one of the largest investments you’ll ever make in your child should start early. I know it is difficult to predict where a newborn might go off to college but knowing the projected costs for a couple of college types (like, private vs. public) is truly helpful in automating savings.

Get started with the following two actions steps:

  • Goal setting: Determine the amount as a family you would like to cover (100%, 50%, etc.). If you don’t know the goal number, you won’t know if you are saving too much or too little. Knowing projected costs for a few college types is truly helpful in defining a goal range.
  • Education: Take the time to learn more about the various types of 529 plans that exist and determine which one or combination of plans is right for your family. Depending on your situation, you may want to open 2-3 accounts. You can always switch gears in the future. Just don’t let analysis paralysis get in your way.

The most important thing is to just start saving. Once you open an account, be sure to automate, automate, automate by funding the accounts monthly. If you have questions, you can always reach out to a financial planner to determine the best allocation buckets for you and your family.

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