Basic Parts of Section 529 College Savings Plans - dummies

Basic Parts of Section 529 College Savings Plans

Qualified tuition programs covered under Section 529 of the Internal Revenue Code are programs that allow you to save money or purchase tuition credits for future college expenses for a specific beneficiary in an account that is administered either by the state (yours or any other) or by a specific college or university. You may see them called either Section 529 plans or qualified tuition programs — they’re one and the same.

Although many variations of 529 plans exist, all have the following component parts:

  • The plan owner: The plan owner is the person who sets up the plan (and who, presumably, makes contributions into it, although other people can make contributions into a plan that isn’t their own). You must be at least 18 years old to be a plan owner, and depending on the plan that you’re interested in starting, you may need to be a resident of the plan state.

  • The designated beneficiary: The designated beneficiary is the potential student for whom the plan owner (who doesn’t need to be related to the designated beneficiary in any way) intends to provide a postsecondary education. The plan owner names this person when he or she sets up the account.

    You can change the designated beneficiary over the lifetime of the account, but the account must always have a designated beneficiary. Like the plan owner, the beneficiary may have to be a resident of the plan state to qualify as a designated beneficiary.

  • The plan administrator: The plan administrator is the state or educational institution under whose auspices the plan exists. In many cases, especially in prepaid tuition plans, the plan administrator is also the plan manager.

    The plan administrator lays out the rules that are specific to that plan, including how much may be contributed, what sorts of investments are allowed, when contributions may be made, and whether plans are open to only resident owners and beneficiaries, or if all may participate.

  • Plan manager: Many Section 529 plans (particularly savings plans) are invested in a variety of mutual funds. Because states aren’t in the mutual fund business, they farm this work out to mutual fund companies. These companies (and states that actively manage investments) are the plan managers; they’re responsible for the actual investing of your money.