The Virginia College Savings Plan, the largest 529 college savings plan in the U.S., has come up with a creative way to reach potential students and parents: on September 11, 2009, it will be the official sponsor for the NASCAR Nationwide Series race at Richmond International Raceway.
The race, called the Virginia 529 College Savings 250, will be run one night before the race that sets the 12-driver field for the Chase for the Sprint Cup championship.
Mary Morris, the CEO of the Virginia College Savings Plan (VCSP), is looking forward to the Nascar opportunity to pitch the state 529 plan as an affordable way to save for college.
What is a 529 Plan?
A 529 college savings plan is a state-sponsored, tax-advantaged investment account designated specifically for saving money for college. Officially authorized by Congress as Qualified Tuition Programs (QTPs), these savings plans are commonly referred to as “529 plans,” “state 529 plans,” or “section 529 plans” after the section of the IRS code that provides the plans’ special tax breaks.
All 50 states sponsor a 529 college savings plan.
You Don’t Pay Tax On the Money Saved In 529 Plans
The primary advantage of using a 529 Plan to save money for college is that you don’t have to worry about paying taxes on the income that accumulates: contributions to the account are not taxed. You won’t have to pay any tax on it when you withdraw the money, either, as long as you use it to pay qualified higher education expenses. Qualified expenses include tuition, fees, books, supplies, and equipment required for study at any accredited college, university, or vocational school in the U.S. (and at some foreign universities). Room and board may also count as qualified expenses, as long as the student beneficiary of the 529 plan is enrolled in school at least a half-time.
Anyone can contribute to a student’s 529 College Savings Plan, whether the 529 plan is for the contributor’s own child or for a friend or family member’s child.
About half of U.S. states offer state income tax deductions for all or part of donors’ contributions to 529 Plans.
2 Types of 529 College Savings Plans
There are 2 types of 529 plans: prepaid tuition plans and savings account plans. Prepaid tuition plans allow plan contributors to buy tuition credits for the student beneficiary, at today’s rates, to be used in the future. Therefore, the amount of money accumulated by the time the student needs it depends on how much tuition has increased since the credits were bought. (Are the original tuition credits enough to cover the current tuition?)
The money that grows in a savings account plans depends on the performance (growth or loss) of the investments in the account, which are usually mutual funds. Most 529 savings plans offer a number of investment options based on the age of the student beneficiary: the closer the beneficiary gets to college age, the more conservative the investments are, to better preserve the money that’s accumulating.
The Virginia College Savings Plan suggests considering these factors when creating a plan for your student beneficiary (or beneficiaries): personal timeline, risk tolerance, tax advantages, and diversification. These sound like appropriate considerations no matter what state you live in.
Find Out About Your State’s 529 College Savings Plan
All 50 states have 529 College Savings Plans— and sometimes more than one, in order to accomplish different investment goals. Talk to your local bank, tax adviser, or state higher education agency to find out about the 529 College Savings Plans available to you in your state, and start saving for your children’s college education today.