What are 529 plans and how can I determine if I can use one to pay for tuition in a particular school?
All states have college savings programs designed to meet the savings needs of their citizens, known also as Qualified Tuition Plans. These programs seek to make the savings options easier for the average families. There are two types of plans:
Prepaid Tuition: Parents, grandparents, and other interested parties may lock in today's tuition rates, and the program will pay out future college tuition at any of the state's eligible colleges or universities (or an equal payment to private and out-of-state institutions).
529 Savings Plans: Savings plans allow participants to save money in a special college savings account on behalf of a designated beneficiary's qualified higher education expenses.
Both types of programs are considered "qualified state tuition programs" under the Internal Revenue Code Section 529 (26 U.S.C. 529). This allows earnings to be federally tax exempt beginning January 1, 2002. Most states exempt earnings from state income tax, and some states allow families to deduct the full or a partial amount of their contribution from their state income taxes.
The Internal Revenue Service (IRS) defines eligible institutions as “any college, university, vocational school, or other post secondary educational institution eligible to participate in a student aid program administered by the Department of Education,” including certain foreign institutions. To determine eligibility, please visit the Federal School Code Search page.
Each qualified state tuition program operates under individual state laws, so programs may vary from state to state. For additional information please visit the following website: http://www.savingforcollege.com/.
Please note that the U.S. Department of Education does not oversee or administer 529 plans.