A 529 plan may be set up either as a prepaid tuition plan or as a college savings plan. With the prepaid tuition plan the plan locks in a current tuition rate at a specific school. A college cost-savings account may be opened by any adult and the donor does not have to be related to the child. Contributions to a 529 plan are made with after-tax dollars and are allowed to grow tax deferred. The Assets in the account remain under the control of the donor, even after the student reaches the age of majority. The funds may be used to meet the student’s educational needs and, after January 2002, the growth may be withdrawn federally tax-free. Most states also allow the assets to be withdrawn tax-free. There are no income limits for the donors and contribution limits vary from state to state.

 

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