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A Tax-Friendly Tuition Savings Plan for Your Child’s College Fund

A Tax-Friendly Tuition Savings Plan for Your Child’s College Fund


Tuition plans are critical as the cost of a college education has risen drastically in recent years, making it more difficult to pay for. 529 savings and tuition plans allow you to save for your child’s college costs, in a way that is tax friendly.

There are several benefits to using 529 Tuition Plans for your child:

  • Assets and investments in your plan grow tax free
  • Depending on where you live, you may receive a tax incentive to contribute to your plan
  • Contribution limits are pretty high

The 529 Plan can benefit everyone. There are no income limits or restrictions, much like there are with certain grants or loans. There are two options for parents looking to get started saving for their children’s tuition early on. The earlier you start the better off you will be, whichever plan you choose.

Here are the two options:

  • Prepaid Tuition Plans – Prepaid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Because these programs are sponsored by state governments, they typically have in-state residency requirements. Many times the government will guarantee the investments in these plans, however this is not always the case. Some of the other features of a Prepaid Tuition Plan:
    • Locks in tuition prices at participating universities
    • Typically only covers tuition, not room and board
    • Often backed or guaranteed by the state
    • There is an age/grade limit for the beneficiary on most plans
  • College Savings Plan – This plan allows the saver to establish an account for a designated beneficiary and choose the investments that are made within the account. Some of the other features of a College Savings Plan:
    • No age limits and open to all children
    • Less strict or no residency requirements
    • Investments are subject to market risk, while not guaranteed by government
    • Contribution limits in excess of $200,000

While both of these plans have helped families pay for college, you should do your own research to see which one works best for your family and your needs.

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