Kinds of 529 Plans
The 529 plans consist of two general types: prepaid tuition plans and college savings plans. All fifty states sponsor at least one type of plan, and many colleges and universities sponsor a prepaid tuition plan. As a result, 529 plans tend to differ in their features and benefits. Earnings from both types of plans are not subject to federal tax (and usually not state tax), as long as withdrawals are made for eligible college expenses.
Prepaid Tuition Plans. Prepaid tuition plans allow college savers to purchase credits at participating colleges and universities for future tuition and, sometimes, room and board. Tuition costs are purchased at today’s prices for use in any future year, when tuition costs will most likely have increased. They may be bought in one lump sum or in annual installments. Most prepaid tuition plans are sponsored by state governments and have state residency requirements, mean