College Planning

Your Baby's 529 Plan

A 529 college savings plan is a great way begin putting money aside for your child's college fund. There are two plans to choose from, the basic and the prepaid tuition.

Starting A Baby College Fund With A 529 Plan

Early in your baby's life, a college savings plan may not be at the top of your list. But the fact is, the sooner you get started, the more you can save (and the easier it will be) to fund your baby's college education.

A great way to begin is with a 529 college savings plan. Not only can a 529 plan help you save more, but it can provide you with federal tax advantages (and in many cases, state tax advantages) as long as you use withdrawals for eligible educational expenses, such as tuition and room and board.

With a 529 plan, you have two plan choices - the basic plan and the prepaid tuition plan. Here, we'll give you the basics, as well as a comparison chart of the two different 529 plans for college planning.

What you need to know about 529 plans

A basic 529 plan is a tax-advantaged investment plan designed to encourage saving for your baby's future higher education expenses. It is administered by state agencies and organizations as a way for people to save for qualified educational expenses such as tuition, room and board, and textbooks.

In addition to the basic 529, there is the 529 prepaid tuition plan. The prepaid plan differs from the basic plan in that it allows you to pre-purchase tuition based on today's rates. This way, you don't have to worry about the rising cost of tuition.

However, these types of 529s can be limited in that they can only lock in the tuition at schools that are listed on the plan. And although you can transfer the value over to another school (in the event your beneficiary selects a school that is not on the list), there is no guarantee it will cover the full cost of tuition. Also, prepaid plans don't always allow you to use funds for anything other than tuition - they often exclude textbooks, room and board, or other necessities. Note: the prepaid option isn't offered in every state, and can be more restrictive than the basic plan.

Comparing 529 plans

The following chart is a basic comparison of some of the major differences between the basic 529 college savings plan and the pre-paid tuition plan options.1

529 chart

For more information on saving for your baby's future college expenses, visit the Protective Learning Center.

NOTE:  As of 2018, the IRS has amended the term “qualified higher education expense” to include a limited amount of annual expenses from a 529 Plan for tuition at an elementary or secondary public, private, or religious school.  Source:

1. Source: Smart Saving for College, FINRA®

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