An education savings plan is an investment account that provides tax benefits when used to pay for the qualified education expenses of a designated beneficiary. Education savings plans are generally categorized as either 529 college savings plans or prepaid tuition plans.

529 College Savings Plans

A 529 college savings plan works like a Roth IRA or Roth 401(k). You invest your after-tax contributions in mutual funds, ETFs and other similar investments. A 529 plan offers many investment options, and its value will go up or down based on the performance of the investment options. Your investment grows tax-deferred, and it can be withdrawn tax-free when the money is used to pay for qualified expenses, including:

• College tuition, housing and more,
• K-12 tuition,
• Apprenticeship programs, and
• Student loan repayments.

How to Find the Best 529 Plans

Despite the potential advantages of 529 plans, only one-third of college-saving parents use them, according to a Sallie Mae report “How America Saves for College.” If you think investing in a 529 plan is right for you, be sure to consider these factors:

• Rate of return – Review the financial performance of 529 plans over an extended time period. 
• Annual fees – Some fees are inevitable, including management and state fees, but the more they add up, the faster they’ll reduce your investment earnings.
• Tax breaks – Some states offer tax breaks for selecting a local plan.

Prepaid Tuition Plans

As the name implies, prepaid tuition plans let you pre-pay all or part of the costs of an in-state public college education at today's tuition rates. Some plans can be converted for use at private or out-of-state colleges, and most states guarantee that the funds you put into a prepaid plan will keep pace with tuition.

For more information on finding the best 529 plans – whether you’re considering a college savings plan or a prepaid tuition plan – visit savingforcollege.com.