Why is it called a 529 Plan?
A 529 plan is a tax-advantaged education savings plan designed to encourage families to save for future higher education expenses. The plans are named after Section 529 of the Internal Revenue Code.
There are two different types of 529 plans: investment plans and prepaid tuition plans.
How do the plans differ?
Investment plans allow you to invest in a variety of investment options (or portfolios) which typically include varying combinations of mutual funds. You can decide how much you want to invest or contribute, how often, and in what type of portfolio. Savings in this type of 529 plan can be used for a variety of education expenses including tuition, fees, room and board, course-specific fees, books and other supplies.
Prepaid tuition plans allow you to lock-in (pre-purchase) tuition amounts at current contract rates to cover higher-education expenses when your child is of college age. These accounts are designed to be used towards tuition and mandatory fees at accredited two-year and four-year colleges and universities.
In Maryland, we offer the Maryland Prepaid College Trust and the Maryland College Investment Plan.