MONEY MATTERS: 529 Higher Education Plan
College is a very expensive proposition these days and it's only going to get more expensive. I understand there's something called a 529 higher education savings plan. What is it and how does it work?
It's probably, the 529 is probably the most popular vehicle that people are using. And what it is, is basically an account that you set up and say I'd be the owner of it and I can have my child. Anyone of my children as the beneficiary. And I put money in this account. It's net dollars going into it almost like a Roth IRA. The money will grow tax deferred. And if you take it out for college, and that can be room, board, tuition and even computers. And if you take it out for a qualified expense it comes out tax free.
But you talk about college, can it be any other type of higher education as well or does it have to be a university or college?
It just has to be a higher education. I mean locally here WITCC would qualify. And any higher education. It's not set up for high school, for qualified higher education. Now some states you know like Iowa, particularly have a somewhat similar plan.
Can you talk a little bit about how they are compared to a 529?
They're very similar but a lot of states have their own plan and Iowa does have one. And the benefit of that is you get some tax favor benefits by using the Iowa plan if you live in Iowa. And a lot of the states have them. Not every state does but some do.