As the cost of a college education skyrockets year after year, many parents find themselves asking how they will pay for their child’s college education. There are a number of options, but choose wisely! Depending on what you do with the funds, there may be penalties involved. Not sure which option is right for you? Talking with our College Funding Coach may help you develop a plan of action.


529 Prepaid Plan vs. 529 Savings Plan

There are two different types of 529 Plans: prepaid and savings plans. The 529 Prepaid Plan allows you to purchase future tuition credits at today’s tuition rates. Think of it as the Forever Stamp of college costs! This type of 529 Plan is available at only a limited number of educational institutions, and has restrictions on who may participate and how funds may be used. Because 529 Plans are governed at a state level, it can be difficult to transfer these prepaid tuition blocks to another state. So, if your child chooses to go to college in a state other than the one in which you opened the plan, you may not receive the full value of your savings when it comes time to pay for college expenses.

The 529 Savings Plan has a little more flexibility. Set up much like an IRA, it allows you to invest money into a tax-deferred account which will later be used to pay for your child’s college education. This type 529 Plan does not have the same state-specific restrictions; you can to use the entire value of your account at any accredited college or university. More good news: you’ll earn interest on your investment.


Your Money, Your Account

One of the major benefits of the 529 Plan is that you, the owner, have complete control over the account. The beneficiary will never be able to access the account, regardless of age.

Anyone is allowed to open a 529 Plan; it does not matter if it is for your child, grandchild or maybe even yourself. And, multiple accounts can be opened for the same beneficiary! So, Mom, Dad, Grandma, and Grandpa can all contribute to college savings.

What happens if your child chooses not to attend college, or, better yet, gets a full ride? If you don’t use the funds in your 529 Plan, there are a number of options available to you. A few possibilities include:

  • Transferring the funds to another beneficiary’s account
  • Withdrawing them for personal use, or
  • Rolling over the funds into another type of investment.


Finding the Perfect State 

529 Plans vary from state to state and it’s a buyer’s market! You’re not limited to your home state’s plan, but can shop around for the 529 Plan that best fits your family’s needs. With 529 Plans there are no residency restrictions; they’re a great option for families whose children wish to attend out-of-state colleges.

If you are looking to compare 529 Plans, has a great comparison tool to let you do side-by-side comparisons of states that offer 529 Plans.

Virginia_Outline  -   VIRGINIA

 Maryland_Outline - MARYLAND


Do Your Homework

Finding the 529 Plan that works best for you may seem like a tedious job, but it’s important to research all of your options. A good place to start is your own state’s 529 Plan. See what tax exemptions they may have to offer. Also, look to see if there are any beneficiary age requirements or other limitations prior to opening a 529 Plan. You may want to consider researching the state’s fees, as some 529 Plans charge enrollment, maintenance and or withdrawal fees. In the end, doing your own research or meeting with Theresa, our College Funding Coach, may help you determine which 529 Plan is right for you.