Section 529 is a college saving program created on the state and federal government level. A 529 savings account is a tax investment savings plan that encourages individuals to save for coming college expenses. When created, a 529 savings account withdraws a selected amount either directly from your paycheck or an approved checking account. Money deposited into a 529 savings plan can be used to pay for various educational expenses such as tuition, books, room and board and any other charge required to study at an accredited university.
The two forms of 529 plans are prepaid and savings plans. Prepaid plans allow you to pre-purchase tuition based on current rates, guarding against future tuition increases. Savings plans call for your account earnings to be based on the market performance of your selected investments. States vary in which plan types are offered to parents.
If you began planning for college at the time of your child's birth, you can save a substantial amount toward his or her education. For example, saving $200 a month and receiving a 7 percent return on investment would give you $80,000 to spend on your child's college education by the time she reaches her 17th birthday. Saving money for college is less expensive than borrowing money through financial aid loans. Money borrowed grows as interest is added, raising the actual amount you must pay back, while the money you save earns interest. Determine which colleges you can afford, then create a savings plan to help your child with as much of the cost as possible.
While holding your child's college savings fund in an account helps, you can also invest portions of that money to try to expedite its growth. Start early with this plan to give yourself time to wait out the down moments of the market. Assess the amount of risk you can take on, and create an investment strategy from that point. For example, start with high-yield investments while the child is young, then switch to lower-risk options as he gets closer to enrolling in college. Diversify your accounts, and review them often to ensure you are meeting your goals.