A 529 plan is a specific type of investment account allowing individuals to receive financial aid and tax benefits. The purpose of these plans is to pay for education with tax-deferred income and savings. There are two types of 529 plans: prepaid tuition and education savings plans.

Prepaid Tuition Plans

Through this 529 plan, you can purchase credits at an in-state or public institution for future tuition at the current cost for the beneficiary of your investment. These plans aren’t compatible with secondary or elementary schools and don’t let you pay for room or board. The primary selling point of prepaid tuition plans is being able to lock in educational opportunities at current prices, avoiding inflation and increased tuition. You also get tax-deferred growth and tax-free withdrawals on these accounts.

Education Savings Plans

This type of 529 plan allows an individual to contribute to an investment account with the goal of accruing savings overtime for a beneficiary’s higher education costs. Unlike Prepaid Tuition Plans which are limited to tuition, Education Savings Plans can be used to pay for room and board, mandatory fees, and tuition. There’s also more flexibility when it comes to putting the funds in this account to use. Generally speaking, withdrawals are applicable to any university or college. Another advantage of an Education Savings Plan is the ability for savers to direct up to $10,000 annually to any religious, private, or public secondary or elementary school.

If you’re eager to get started saving for your child’s education, feel free to reach out to Lacy Financial for information regarding our 529 plans.