Their greatest benefit is that you can lock in the price of tuition at the time of payment.

Prepaid Tuition Plan: These accounts can be a great choice if you know your child will pursue college at an in-state, public school.

On the other hand, you may lose some of your 529 funds if the value of your portfolio drops. If your investments do well, these accounts can generate strong growth over time. Often, you’ll have the chance to make portfolio selections when you open the account, so you can have some control over the amount of risk you want to assume.

Traditional Savings Plan : The money you put into these accounts is invested in mutual and money market funds.

Prepaid Tuition Planĥ29 plans are generally categorized in one of two ways: as prepaid tuition plans or traditional savings plans. As a result, it’s important to understand which expenses are eligible for 529 plans. Unfortunately, if you withdraw 529 money for anything other than 529 plan-qualified expenses, you will face a 10% federal tax penalty as well as state and federal taxes on the withdrawn gains. Most states offer their own 529 plans, and many states also provide additional tax benefits, including the option to make tax-deductible contributions. As long as you withdraw the funds for qualifying educational costs, distributions are tax-free as well.

When you deposit money into a 529 plan, your money grows tax-free.

A 529 plan is a special type of savings account you can use to pay for qualifying educational expenses.

529 eligible expenses