What's a 529 College Savings Plan?

Published: April 2014

The cost of a college education keeps getting higher and higher, even outpacing inflation. According to the National Center for Education Statistics, prices for undergraduate tuition, room and board at public institutions rose 42 percent from 2001-2011 compared to a 31 percent increase in prices at private not-for-profit institutions.

One hundred dollar bills with the words College Savings Plan.

Fortunately, planning and saving ahead of time can help parents contribute to their children's education without sacrificing their retirement plans. A 529 college savings plan is a popular savings vehicle that is generally state-sponsored and professionally managed. In some cases, you can automatically contribute money from each paycheck, similar to the way you might contribute to a retirement savings account such as a 401(k).

Each state has at least one 529 plan, and many offer several options. You're not limited by your state of residence or the state where your child plans to attend college, but some states offer benefits for residents who invest in their state's 529 plan.

Here's a look at the benefits of using a 529 plan to save for college:

  • Flexibel use. Money in a 529 plan can be used to pay for eligible expenses such as tuition, fees, textbooks, computer equipment (if required) and room and board. There are generally no penalties for rolling over funds to a different beneficiary, so [SJ4] you could transfer money not used by one child to another relative. There are no age limits or requirements, so you could start a 529 for an adult child or even for yourself if you decided to go back to school.

  • Potential tax benefits. Assuming you use withdrawals for eligible college expenses, earnings in a 529 plan are generally not subject to state or federal taxes. However, withdrawals for other purposes might be subject to tax. Some states also offer matching grants for investing in a 529 plan, but you may need to participate in the plan offered by your state of residence to receive the grant.

  • Menu of investment options. The person who opens the account (also called the account holder or custodian) typically chooses the investment options, in which the plan invests on their behalf. These options might include stock mutual funds, bond mutual funds, and money market funds. Or, in the case of an age-based 529 plan, money would be invested more aggressively at first to jump-start growth and gradually become less risky as the beneficiary (the child the money is intended for) approaches college age.

  • Contributions from friends or relatives. Although you might be the custodian of the 529 plan and choose the investment options, friends or relatives can contribute to your child's 529 plan and help that money grow over time.

Want to know more about college savings vehicles? Contact an Allstate Personal Financial Representative to discuss your needs.

Learn More

Coverage subject to terms, conditions, and availability. Policy issuance is subject to qualifications. Allstate Insurance Company, Allstate Indemnity Company, Allstate Fire and Casualty Insurance Company, Allstate Property and Casualty Insurance Company, Northbrook, IL. © 2014 Allstate Insurance Company, Northbrook, IL.

Get A Quote

Your location is set for:

Ashburn, VA 20146 Edit
GET A QUOTE

Retrieve a saved quote

Agents Near 20146

  • Wendy Moore
    Wendy Moore
    44075 Pipeline Plz Ste 305
    Ashburn, VA 20147
  • Donald Kraper
    Donald Kraper
    1301 Moran Rd Ste 101
    Sterling, VA 20166
  • Ormsby Insurance Group
    Ormsby Insurance Group
    44110 Ashbrn Shpg Plz Unit 216
    Ashburn, VA 20147
  • Malan Chakravarthi
    Malan Chakravarthi
    20609 Gordon Park Sq Ste 130
    Ashburn, VA 20147
  • Marvalee Lord
    Marvalee Lord
    22636 Glenn Dr Ste 205
    Sterling, VA 20164
Agent finder map
ECC Monitor: OK