Section 529 Plans

Question 1

A Section 529 plan can take one of two forms:

• ___________ plan
• _______ plan

A prepaid tuition plan is a state-sponsored plan that is set up to “prepay” and _________ the cost of a child’s education.

Answer 1

A Section 529 plan can take one of two forms:

• a prepaid tuition plan
• a savings plan

A prepaid tuition plan is a state-sponsored plan that is set up to “prepay” and lock in the cost of a child’s education.

Question 2

How is a College Savings Plan different?

List 4 characteristics of a College Savings Plan?

1. There is ________ to the amount that can be contributed into a college savings plan.
2. When the funds are withdrawn, they and the interest they earned are __________ .
3. To escape taxes, these funds must be used for ______________________, such as …
4. Contributions are not ___________, but some states may allow contributions to be deducted for state tax purposes.

Answer 2

A college savings plan takes the form of a state-managed investment account into which parents (or grandparents) can contribute funds.

1. There is no limit to the amount that can be contributed into a college savings plan.
2. When the funds are withdrawn, they and the interest they earned are not taxable.
3. To escape taxes, these funds must be used for qualifying college expenses, such as tuition, fees, room and board, and books.
4. Contributions are not tax deductible, but some states may allow contributions to be deducted for state tax purposes.

In general, a college savings plan does not restrict what college or university the child attends. The funds can be applied toward most U.S. accredited public or private colleges or universities, community colleges, and graduate schools. Some plans also recognize accredited vocational and international colleges. At all times, the account holder controls the account.