Having a baby is a sound remedy for turning into a more responsible person, making you plan carefully for future events.  You may be asking yourself: "How can I prepare for the cost of my baby's college education?"

(It may seem premature to some, but time will help you save the right sum). When you start inquiring about a savings plan, one of the first options that will come up is the 529 plan.  But what is this 529 plan?

There are many different savings programs titled 529 plans.  The conditions and benefits of the plan are set by each state or university, making any general guidelines invalid in some cases. Nevertheless, there are some similarities that most plans share. 

Even if you don’t have the time and patience for math or money issues, there are basic facts which may help you understand what the whole 529 thing is about.

The Facts
529 is an education savings plan designed to help you pay for your children's college fee.  Since the idea is to assist, your contribution will be considered a gift, and therefore given special tax benefits by federal law.

Each state offers at least one option for a 529 savings plan which comes in two forms:
Prepaid 529 plans - when you contribute all the money you want to invest in one go.
Savings 529 plans - when you arrange for automatic deposits.
Many plans have elements of both kinds (though colleges and universities can only offer the prepaid option).
In most of the states, you can invest over $200,000, which is a nice sum considering the tax benefits.

Advantages and Disadvantages
The advantages of the 529 plan:

You will receive tax benefits.
You can change the beneficiary, making it easier not to necessitate a refund on the plan.
The responsibility for the investment is not in your hands, so you avoid the headache of worrying and trying to understand the economical terminology.  The investment is managed by the state's treasurer's office or a private investment company.  
The investment fund isn't considered part of your assets when it comes to tax, and only marginally when it comes to your child's entitlement to financial-aid. Yet, you still have full control over the money and what is done with it.

The main disadvantage of the 529 plan is a penalty of 10% federal tax if you withdraw funds (among other possible penalties of each particular plan if you choose to withdraw).

The whole thing must sound quite complicated, and it actually is.  This is the basic idea behind 529 plans, and as you can see they do have some great advantages as college savings plans.  Inquire about the different possibilities, and choose the plan that answers your specific needs and preferences.
 

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