ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Advantages and Disadvantages of Different 529 Education Savings Plans

Updated on February 8, 2010

529 Education Savings Plans

Post-secondary education is expense, and tuition and room and board rates continue to grow faster than annual inflation. Luckily, all 50 state governments offer at least one major education savings plans to their residents, allowing parents to save for over a decade through tax-advantaged 529 plans for their children’s futures.

Many different agencies offer their own variations of college savings investment opportunities and plans, including states, divisions of states, individual colleges, or consortiums of colleges. Each provider creates different rules for their long-term education savings plans, but all 529s can be sorted into one of two categories: college savings plans and pre-paid tuition plans.

Type #1: College Savings Plans

College savings plans tend to work as specialized investment options with favorable tax treatment on qualified, education-related expenses.


  • Broad definition of acceptable expenses, including all fees required to attend and live at the university, plus coverage for textbooks and all necessary equipment and electronics to attend class.
  • In most plans, the 529 contribution limit set high, at well over $200,000 per savings plan.
  • The plans will adjust automatically to more conservative investments as the investee nears college age.
  • There are no age or other restrictions on the student who can benefit from this savings plan.


  • These are investments that may fluctuate significantly in value, and there is no guarantee that they will be able to keep up with the yearly tuition rate increases.
  • Your investment options will be limited to several major categories, much like the investment plans offered by company-sponsored retirement plans. U
  • Usually you will not be able to switch plans or make asset allocation adjustments more often than once a year.

Type #2: Prepaid Tuition Plans

By participating in a prepaid education plan, you can essentially pre-pay for your child’s college education by locking in tuition rates at participating universities.  Prepaid 529 tuition plans are generally much more restrictive, but with correspondingly more beneficial financial treatment.


  • The plan is backed through a state government or government agency and guaranteed to be honored upon the beneficiary entering college.
  • It is impossible to predict future college costs, but this is likely the less expensive option in the long-term than paying for tuition costs in the future.
  • Once funds have entered the account, stock market and economy fluctuations cannot drive down the value of the plan.


  • Either the account holder or the beneficiary (usually) must be a resident of the state in which the selected university is located.
  • There are usually grade level and age limits on when contribution must begin, and when the beneficiary is too old to receive the pre-paid tuition credits.
  • Room and board and other education supplies purchases are not included in the prepaid tuition plans, though some plans offer the option to pay more to cover these expenses, too.

Things You Should Know About Both Education Savings Plans

Both types of plans invoke penalties if you do not use the accumulated funds for approved expenses, usually an additional penalty deduction over the normal income tax, but the college savings plan has a much broader definition of what qualifies as an education expense.

Many states allow account holders to deduct contributions to 529 plans, but only if it is a plan for the estate in which the account holder resides; though rarely states allow deductions for contributions to any 529 plans in any state.

Both plans may have significant fees associated with them, with initial and periodic administrative fees associated with pre-paid tuition plans and asset management fees commonly incurred on college savings plans. These fees may be reduced for large investment amounts, or through buying into education plans directly through the state or state agency, though you may have to ask the provider to get the discount.

One Last Tip

Finally, before you decide on a specific plan, read the plan’s offering circular, their complete breakdown of all investment details, options, and potential and required plan fees. This document may be termed a “disclosure statement” or “program description” by the plan provider and will provide a full disclosure of all relevant details you need to know to make an informed college savings plan decision.


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)