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Using a 529 Plan to Save for College

Using a 529 Plan to Save for College

 

                A specialized type of investment, 529 Plans, are a great way to save for college for yourself or your children.

                 529 Plans are run by individual states. In North Dakota, the program is “College Save” which is administered by the Bank of North Dakota.  With a 529 Plan your money is invested either in a contract that promises to pay for at least part of the future tuition costs for your child (this is called a prepaid tuition plan) or in a mix of stock and bond mutual funds (this is called a college savings plan).

                Either way, the value of your investment grows tax-free until withdrawn. In the years when withdrawals are used to pay for college costs, the growth is taxed to the student, not to you.  This combination of tax-deferred growth and your child's lower tax bracket can provide a significant financial benefit to you.  Your account can be used to pay for any accredited college in the country, and for many graduate schools as well. 

                There are two dozen states that make their college savings plans available to everyone no matter where you live, and you can even have accounts in more than one state.  North Dakota is one of the programs that opens its plan for others to enroll in.  Since every 529 plan is unique, you may find program features and investment choices in other states that appeal to you more than those in your own state. For instance, some states have hired an investment company, such as Fidelity, Merrill Lynch, or TIAA-CREF, to design and manage the investment portfolios that hold your money. Other states manage the funds within their own agencies.

                 Here are some of the things you should compare when shopping for a 529 plan:

  • The level of investment risk and potential return
  • The cost of participating in the plan
  • The quality of the program materials
  • The ease of changing account beneficiaries or the account owner
  • Any age restrictions or limits on the types of education expenses covered
  • How to get out of the plan

                A huge advantage of 529 Plans is that you, the account owner, will always have control over the 529 Plan account. Your child has no right to the account even after he or she turns 18 or 21. A 529 college savings plan is treated much better in determining eligibility for federal financial aid than many other plans.
                There are a great many details to 529 Plans.  For North Dakota, more info can be found at: https://www.collegesave4u.com/home.html.  For 529 Plans in general, check www.savingforcollege.com for more info.

 

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