529 Basics -- Our fast facts for the busy parent

A brief history of 529s

Added to the Internal Revenue Code in 1996 under the Small Business Job Protection Act passed by Congress, Section 529 opened the door of opportunity for state-sponsored tuition savings programs. Similar to how Section 401-k changed the way Americans save for retirement, Section 529 has revolutionized through tax incentives the way families save for college, with over eleven million 529 plans started and over one hundred thirty billion invested.^{*3rd Qtr. 2010 statistics}

Types of 529 plans

• Savings plans. A savings plan takes your contributions and invests them in individual mutual funds or age-based portfolios. The goal is for the value of your account to grow over time. The primary advantage of savings plans is that the owner of the plan pays no federal income tax, state income tax, and no capital gains for distributions to help pay for college expenses when the time comes. With this type of 529 savings plan, the tax benefits apply to any college or university of choice.
• Prepaid plans. In short, these plans allow you to purchase credits or units towards future tuition costs at participating colleges or universities. You are limited to certain college choices and in some cases have to decide on the college when you start your prepaid plan. Prepaid plans may help protect against inflation by locking in tuition at today's prices. Most prepaid plans are sponsored by state governments and have residency requirements.

Do-It-Yourself vs. working with a pro

• Adviser-sold plans. Setting aside time to research, analyze, and plan is not an easy feat when you're a busy parent who is juggling family, personal, and work responsibilities. That's where an advisor-sold plan from College Rocket can help. Your Parent Investment Expert will take care of the research, analysis, and planning of your child's college savings account for you. A small sales charge does apply, but the expert advice and the time you save are priceless.
• Direct-sold plans. If you are a do-it-yourself investor who doesn't need help and guidance, direct-sold plans offer the advantage of low fees and expenses. However, the do-it-yourself approach does carry a cost in the time and effort you will have to invest in researching tax rules, analyzing individual plans, and putting together a long-term investment strategy.

529 plans and financial aid

The way things stand today, 529 plans do not hinder a qualifying student's eligibility for federal or state financial aid in most cases. That said, there are exceptions to every rule. Your Parent Investment Expert can walk you through the fine print and explain the details in full.