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What Is A 529 Savings Plan? 10 Things You Didn't Know About Saving For College

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Graduates take cover under umbrellas during Yale University's commencement exercises in New Haven, Conn., Monday, May 21, 2012.
Graduates take cover under umbrellas during Yale University's commencement exercises in New Haven, Conn., Monday, May 21, 2012.

It may not sound as exciting as Bubble Bath Day (January 8) or National Chili Day (February 22), but May 29 has been dubbed 529 Day by many states in order to inform Americans of 529 plans, or state-sponsored college savings plans.

If you didn't know what a 529 was before reading this, you're not alone.

According to a recent survey by financial services firm Edward Jones, 62 percent of Americans do not know what a 529 plan is. Americans that do know what a 529 is tend to be wealthier and more educated than those that do not, according to the survey.

Saving for college is an important, especially for poorer families. A college degree is worth $2.8 million over one's lifetime, according to a recent study by Georgetown University.

Here are ten things you probably did not know about 529 plans:

  1. When you invest your college savings in a 529 plan, you can withdraw the money tax-free (as is the case with a a Roth IRA). [AP]
  2. Many 529 plans also offer a state income tax break. [WSJ]
  3. You can use a 529 plan to pay for college at any eligible college, not just a state school. [SEC]
  4. You can invest up to $13,000 per year in a 529 plan without having to pay a gift tax. [IRS]
  5. A 529 plan can pay for not only tuition, but also room and board, required fees, and books and computers. [SEC]
  6. There is no age limit for the beneficiaries of 529 plans. [SEC]
  7. On average, 529 plans sold through an adviser are 2.15 times as expensive as 529 plans sold directly to parents. [AP]
  8. Parents of a child born today would need to save $385 per month to afford paying for the average state school. [AP]
  9. You can change the asset allocation in your 529 plan once per year, or anytime you change the beneficiary of your 529 plan. [WSJ]
  10. 529 plans are largely invested in stocks in order to grow. But that extra risk has pitfalls. The average 529 plan lost 24 percent of its value in 2008 during the financial crisis and stock market crash, though it has been recovering since then. [WSJ]

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