A 529 college savings plan is a state-sponsored investment that helps save money for college tuition and expenses. 529 plans offer a number of benefits, which vary by state, including tax-deferred growth and federal tax-free income withdrawals.

There are two types of 529 plans: college savings plans and pre-paid tuition plans. There are also Independent 529 prepaid tuition plans, affiliated with a number of private colleges and universities rather than a specific state.

To establish a 529 savings or prepaid tuition plan you first need to decide which plan you're going to use and in which state you will use it.

Details and information for 529 plans are available by contacting the individual state sponsoring the program. Most states offer residents the opportunity to invest in the plan directly. These plans typically offer lower fees and no sales commissions. For those looking for professional advice on how to invest in a 529, "Advisor Sold" programs are offered by many of the state plans. Advisor sold programs offer professional investment advice for added fees.

Each state that offers a college savings plan and/or prepaid tuition plan contracts with a specific financial services company to manage that plan. Each 529 plan has a special Web site and dedicated phone number for setting up the account and managing investment of funds, as well as distributions.

The most comprehensive and easy-to-use information source for college savings plans is the College Savings Plans Network, http://www.collegesavings.org. The College Savings Plans Network was formed in 1991 as an affiliate to the National Association of State Treasurers. The Network serves as a clearinghouse for information among state-administered college savings programs. The CSPN site provides links to individual state plans as well as phone information.

When choosing a 529 plan, always consider your home state's plan first. States usually offer added tax benefits for residents, and sometimes provide other benefits, such as matching grants, unavailable by investing in another state's 529 plan.

Many states offer their plans to non-residents. If your state plan does not offer the features you need, you can choose to participate in another state's plan.

Decide which state plan you want to use.

For an excellent overview of the best state plans, visit finaid.com.

http://www.finaid.com/savings/529ratings.phtml

Once this decision is made, visit the 529 plan's website or call directly to enroll and open an account.

Once established, you decide where to invest the funds in your 529 account. Similar to a 401(k) or IRA savings account, you choose where to put your money, given a choice of funds available through your plan's financial services company. The investment of a 529 plans account's monies are generally managed by one or more private investment companies that have been selected by the particular state (e.g., mutual fund companies such as Vanguard, Fidelity, and American Funds).

The second type of Section 529 Plan is a state-sponsored Prepaid Tuition Plan. This kind of plan is also available through a state-maintained program, through which a person can acquire tuition credits or certificates that entitle the beneficiary of the account to the waiver or payment of education expenses. The Prepaid Tuition Plan provides in effect a hedge against higher-education inflation by enabling a contributor, such as a parent or grandparent, to purchase at current prices a specified number of academic periods or course units for future use. To establish an account, contact the state 529 plan administrator.

The Independent Section 529 Plan is a prepaid tuition plan sponsored by a consortium of independent colleges and universities. The Independent Prepaid Tuition Plan enables a contributor to lock in future tuition costs at prices that are even less than current tuition costs, due to discount features. A contributor purchases tuition certificates that can be used to pay for future tuition costs at any participating private educational institution. When the student is later accepted at a member college, the certificate can be used to pay the percentage of tuition and mandatory fees that were pre-purchased.

In addition to purchasing tuition certificates, the contributor is also credited with a certificate discount at each member college. Each college sets its own certificate discount rate, but it can never be less than 0.5%. The contributor locks in the certificate discount rate on any certificate bought during the current program year. The value of that certificate discount compounds every year from the year of purchase to the year it is redeemed.

TIAA-CREF administrates the Independent Prepaid Tuition Plan and manages its investments. For more information or to enroll, visit the Independent Prepaid Tuition Plan website: http://www.independent529plan.com.

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