529 college savings plans are tax-advantaged investment accounts designed to help families save for future education expenses. These plans are named after section 529 of the Internal Revenue Code, which created them in 1996.
529 plans are offered by states, state agencies, educational institutions and some investment providers. Each plan has its own investment options, fees, and can be limited in choice. Generally, 529 plans allow parents, grandparents, and other family members to contribute funds on behalf of a designated beneficiary, typically a child or grandchild.
Contributions to a 529 plan grow tax-free, and withdrawals are also tax-free when used for qualified higher education expenses, which can include tuition, fees, books, and room and board.
Although it is always a good idea to save for your child’s future, it can count against you for financial aid. If it is owned by a parent or the student, it will count as an asset on the FASFA form. Many times, parents can qualify for financial aid if the assets are structured properly with the right planning. There are alternative plans available to save for college that will not disqualify you for financial aid.
To find out more about alternative plans and how to qualify for financial aid click here.