Some families have chosen to invest in 529 college savings plans, made popular through a 2001 tax act. Essentially, 529 plans are tax-advantaged investment plans administered by states. They are designed to help account holders save for future college expenses. There are two types of 529 programs: the 529 prepaid tuition plan and the 529 savings or investment program.
Account holders can contribute money on behalf of a beneficiary (i.e., the future college student). The contributions are invested and managed over time by the program, and then funds can grow and be withdrawn tax-free when used for higher education expenses.
For more information about 529 College Savings Plans, visit the U.S. Securities and Exchange Commission website at www.sec.gov/investor/pubs/intro529.htm. Another helpful resource is the College Savings Plan Network website at www.collegesavings.org.
Keep in mind that there may be federal financial aid as well as tax consequences when investing in and withdrawing from 529 college savings plans, so be sure to do your homework and research your options regarding 529 college savings plans.