What are 529 savings plans and how will they help me save for college?

529 plans were developed to help families save the money needed for the college education of their student. They are aptly named 529 plans because this is the part of the tax code that allows them to exist. They are wonderful for all of the tax benefits and they can be extremely helpful to some people who need to save some serious cash for a college education.

You can get a complete list of the programs available for each state by visiting College Savings Plans Network or Finaid.com . .

There is more than one type of 529 plan, there is actually two different ones. There are the savings plans and the prepaid tuition plans and of these the former is the most common choice.

What makes the 529 savings plan such a popular choice is the fact that those who open it have options. They will open the account and then be able to choose the investment strategy that is right for them and their situation. All of the money made in this account is tax-free and when it does come time to fork out the cash for the college education the money can be taken out tax-free as well. This tax free money can be used for tuition or even for books, dorm life both room and board.

You will be able to use this money at any accredited college or university, which makes it flexible. And to add to this flexibility those who open the account have more than one investment option to choose from. You as the parent or guardian will be able to look until you find the program that suits you, your tastes and your needs best. Most good college savings plans will begin with aggressive investing and then get more conservative as college age approaches.

There are times when all of the best paid plans get thrown for a curve, for example when the student you are planning for decides against going to college. In this case you will have a few different choices to choose from. One you will be able to keep the plan in case down the road the student changes his or her mind. He or she could end up wanting to go to university in the next couple of years or two you could switch the plan over into the name of another child. If neither of these options seem to work for you, you will then be able to ash it out. There will however be a penalty for doing this but at least you get your money back. You will get some decent interest still too, most states will only take about 10 percent of the earnings on the investment. But then there is the federal penalty as well to contend with which is often another 10 percent. If the beneficiary of this plan, the student, dies or becomes disabled there will be no penalty charged when you cash out the plan.

There is only one drawback to having 529 plans and that is the fact that these plans can take a chunk out the financial aid that the student is eligible for.

If you are a low-income family and chances are good that you can get some serious financial aid many experts will not advise you to get a 529 plan. These plans have been known to actually eliminate the money that students can get from financial aid packages and they almost always reduce it. These types of plans are assets and as such have a direct impact on the eligibility of financial aid. So if you qualify for financial aid this may not be the right choice for you and your student.

These types of pans are best suited to those who make a lot of money anyways and who will not be getting much in financial aid help. 529 plans are good now but the tax-free aspects of them run out when 2010 rolls around unless congress decides to extend it, which they may or may not do.

State sponsored plans are not free as they come with big price tags when it comes to their management expenses and other miscellaneous fees. You need to watch the amount that you are investing and do the math to make sure that you will always be coming out ahead. If you calculate wrong a 529 plan could actually cost you money rather than make you money.

In many cases the maintenance fees on such plans are waived if they are in state plans and if you are good at making regular payments. This is something that you need to find out about, as it is very important to the amount of money that you will actually be making.

The majority of the fees you will encounter with 529 plans are less than $50 but there are many of them to deal with and they can seriously add up so keep an eye out and find out about all of these fees before you open an account.

The largest of the 529 fees that you will come across in these types of plans are the yearly fees. Since most of these are asset based fees the more you have the more you will be charged. A percentage of the money of the account will be charged each and every year for the maintenance of the account. Even the mutual funds that the plan invests in can take these types of fees so watch out and be sure that you know what is what before you invest any money whatsoever.

Not all of the 529 plans charge the same in their fees. The fees can range anywhere from under 1 percent of the assets in the account to 10 percent. Knowing what you will be charged is essential to planning for this plan. By choosing the 529 plan that has lower fees you could save hundreds of dollars each year, or even each month, and thousands of dollars over the life of the investment.

Remember that the investments that you choose will also have a bearing on the types of fees that you are charged. The loads of your investments will directly affect the cost of any plan that you choose.

It is always a good idea to choose investments for your 529 plans that do not have any load whatsoever. This is an effective way to save money on your investments. The less you have to pay out in fees the more you have to pay for college.

When you are shopping for a 529 plan that is right for you, you will need to do some serious comparison shopping. This is easy to do when you have such tools as the Savingforcollege.com 529 evaluator . With this calculator you will be able to compare several different aspects of different 529 plans quickly and easily.

Broker sold 529 plans tend to be much more expensive than other plans, in fact they could be as much as three times higher than state plans. If you want to look for lower costs then you want to look for directly sold plans like those offered directly from the state in which you live.

The most important aspects of any 529 plans that you want to choose are low fees and a diverse selection of investments. Try to stick with plans that have fees less than 1 percent. This is the best way to get your money growing in a good and efficient manner. And most importantly look at all of your options before making any final decisions. There are many ways to save for college and what is right for some may not be right for others.