Selecting A College Savings Plan

Before you start saving specifically for college, you should consider your overall financial situation. Instead of saving for college, you may want to focus on other financial goals like buying a home, saving for retirement, or paying off high interest credit card bills. Remember that you may face penalties or lose benefits if you do not use the money in a 529 account for higher education expenses. If you decide that saving specifically for college is right for you, then the next step is to determine whether investing in a 529 plan is your best college saving option. Investing in a 529 plan is only one of several ways to save for college. Other tax-advantaged ways to save for college include Coverdell education savings accounts, Uniform Gifts to Minors Act (“UGMA”) accounts, Uniform Transfers to Minors Act (“UTMA”) accounts, tax-exempt municipal securities, and savings bonds. Saving for college in a taxable account is another option.

If you decide to invest in a college savings plan is right for you remember that no two 529 plans are exactly alike. Before selecting either a prepaid tuition plan or a savings plan, you should consider what type of plan best suits your needs and obtain copies of its offering documents, which are provided free of charge by the plan and discuss the plan's features in detail. Rather than obtaining documents for just one plan, you may want to examine documents for a number of different plans, including those offered by your home state because they may offer benefits not available in another state's program. Doing so will enable you to compare the features offered by each of the programs and determine which plan best suits your needs. An excellent source for these materials is the College Savings Plans Network (CSPN) website (www.collegesavings.org).

Some investors may even consider both kinds of plans - a prepaid plan to cover tuition and fees and a savings plan to pay for additional expenses, such as room and board, books, and required supplies and equipment in connection with a postsecondary education.