Predominantly, most states sponsor college savings plans. These plans are usually called “529 plans,” after the section of the IRS tax code that authorizes them into effect.  Each state configures the max amount you may put forth annually per child. Contributions involved in most 529 plans expand entirely tax free, meaning that no capital gain taxes are paid. Around half of the states in the U.S. offer tax deductions on contributions to their 529 plans.

There are two different types of 529state plans: the prepaid plans and the savings plans.

• 529 prepaid plans are contracts that are purchased to secure in today’s tuition rate at public and a few private colleges in a specific state.  Limitations are applied when allocating funds for 529 prepaid plans for out-of-state colleges and the impact on financial aid is worse than if you invest in 529 savings plans.

• 529 savings plans consist of mutual funds that expand tax free and can be used for any qualified higher education expenditures: tuition, room and board, and other varied college expenses thereof.

To be eligible for the State529 Plans, students must meet the following criteria:

• Be a U.S. citizen or permanent citizen

• 529 Plan costs range from 0%-2.5% of one’s assets per year
• You can invest as little as $25 to open a 529 plan and invest over $300,000 per beneficiary
• You cannot invest the $300,000 as a lump sum