529 Savings Plans.

529s are considered a municipal security.

529s must be offered by a municipality: fund company cannot offer on their own.

Fund companies partner with a state; the state acts as a sponsor.

State's role is to manage the assets in the plan.

Advantages:

High contribution limits

Account owner maintains control of assets

Minimal impact to financial aid (529 Savings Plan is not an asset of the student)

Flexibility of beneficiary

Contributions grow tax-deferred

Can use funds to attend almost any accredited post-secondary school including public or private gradute school, community colleges, or vocational schools.

Distributions are tax free if used for qualified educational expenses, which include Tuition fees, room and board, Books and supplies.

Disadvantages

Investment risk is a factor

Taxes and penalties are due on the earnings of a nonqualified withdrawal

Nonqualified withdrawals are taxed at the "owner's" tax rate.

529 Prepaid Plans

In a 529 Prepaid Plan, you buy credits at today's price to pay for college in the future. These plans are sponsored by the State and are limited to residents of that state.

Can lock in future education at today's rates.

May use for two- year community college, four-year undergraduste program or combination of both.

Disadvantages

Some plans only cover tuition and fees, but not housing, books, or other college-related expenses.

Funds count dollar-for-dollar against financial aid.