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How to Save for College With a 529 Plan


With the rapidly rising cost of college and the growing income gap between high school and college graduates, it's a good idea to start saving early for your children's education. A 529 plan is a tax-advantaged educational savings plan operated by states and educational institutions. You can start a 529 plan as soon as your child is born. Research your options and start saving today!

  • There are two types of plans. 529 plans can be prepaid tuition or college savings plans. Prepaid tuition plans allow you to purchase credits for future tuition and mandatory fees at participating colleges and universities. Prepaid tuition plans allow you to lock in tuition rates; however, most are limited by state residency restrictions. College savings plans allow you to invest money, with several investment options, for your child's eligible college expenses. These plans do not lock in tuition rates; however, they are not limited by state residency restrictions and allow your child to attend virtually any college or university.
  • Plan earnings are not taxable. As long as withdrawals are made for eligible college expenses, 529 earnings are not subject to federal income tax. Be aware that if you withdraw money from a 529 plan without using it on eligible college expenses, you will be subject to federal income tax plus a 10 percent penalty.
  • You may sign up for any state's plan. If you choose a 529 college savings plan, you are not limited to your home state's plan. There are many options in all 50 states. Residency requirements may be a factor to consider for military families that may relocate to several states before their children are ready for college.
  • Anyone can contribute to your child's plan. Ask friends and family to contribute to your child's 529 plan in lieu of birthday, holiday or graduation gifts. Grandparents may also want to contribute to your child's plan. Make sure that you check with your individual plan regarding gifts and tax liabilities.

Research your options

You can get all of the detailed facts, including a side-by-side comparison of the different types of 529 plans and a link to the College Savings Network - where you'll find a guide to the 50 state plans - by visiting the U.S. Securities and Exchange Commission.

You can receive financial education services through your installation's personal financial management program. Visit MilitaryINSTALLATIONS for contact information, and choose "personal financial management services" in the selection box.

If you don't live near a military installation, you can also access personal financial counseling services through Military OneSource or through your local Joint Family Support Assistance Program. These counselors understand the military environment and the special challenges you may face. To learn more about these financial counseling resources, contact Military OneSource at 800-342-9647.

Services provided through the Personal Financial Management Program on your installation, Military OneSource and the Joint Family Support Assistance Program are available at no cost. Let these services and resources help you make sense of your options for college savings and plan for your children's future.


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