NEW YORK — You may have heard about the new push to get families to invest in 529 college savings plans. In which case, you might be wondering exactly what they are.
Though still not widely used, 529 savings plans got a fresh endorsement last week when the Obama administration urged states to make it easier for middle-class families to enroll in them. The White House issued a report stating only 5 percent currently do so, compared with a third of high-income families.
“A lot of people aren’t even aware they exist,” said Kathy Hankard, owner of Fiscal Fitness, a financial consulting firm in Verona, Wis. “If they do, there are a lot of misconceptions about how they work.”
Put simply, a 529 savings plan lets families invest for college in much the same way as 401(k) plans let families save for retirement. Distributions are tax free, but must be used for educational costs such as tuition, books, and room and board. While that sounds simple enough, all states offer their own plans, each of which have multiple investments options.
