Posted by André Nosalsky :: September 20, 2007 @ 11:15 am

Sometimes you might be looking to invest for a longer term than what Lending Club offers. One of the ways to do so when saving for college is by using the 529 Savings Plan. This plan is named after section 529 of the Internal Revenue Code. It is a savings plan specifically set up to help ease the process of saving for higher education. Let’s look at the benefits of a 529 plan.

• Tax-Free – Anything you can do to generate tax-free savings is almost always a good idea. In this case, the money in a 529 plan is allowed to grow free of any taxes from any state or federal taxes (according to the SEC). When the money is withdrawn and used towards college expenses, in most states there are no taxes either.

• Covers most college expenses – The money from the 529 plan can be used to pay for tuition, fees, room and board, books and supplies. It is not required that the money be used for tuition and fees only.

• Higher than inflation – College expenses have risen nearly 51% in the last ten years (according to the College Savings Plans Network). This means that having some kind of savings (especially the tax-free kind from 529 plans) can be a major help down the road when it’s time to pay back any student loans.

• Very few restrictions – Unlike other programs, the 529 plans have very few restrictions. Your minimum contribution can be as little as $15 and in most states the plan can hold $300,000 or more per person. There are also no income requirements for contributors. Finally, you can participate in any 529 plan across the United States.

• A lot of control – The person that sets up the 529 plan can change the beneficiary of the plan. The plan can be moved from state to state, to allow you to shop around for plans that have low fees. If it turns out that the money will never be used for educational purposes, it can be withdrawn after paying taxes. A 529 plan can be used at any accredited school of higher education.

More information: If the 529 College Savings plan looks interesting, you can use this calculator to decide if it makes sense for you. Read the SEC introduction to the 529 plans, which offers a helpful comparison between prepaid tuition plans and college savings plans. You can also download this 18 page brochure (pdf) from the Investment Company Institute. These plans vary from state to state and are often changed, so check with your state for full and up-to-date details before taking any action.