Percent change at an annual rate from the preceding period.
|Growth Rate - Real Gross Domestic Product
|Inflation Rate - Consumer Price Index||6.20%||–8.3%||–2.4%||1.30%|
|Civilian Unemployment Rate||6.10%||6.90%||8.10%||9.30%|
What is a 529 Plan?
A 529 Plan refers to Section 529 of the Internal Revenue Code allowing states, state agencies or educational institutions to sponsor a tax-advantaged savings plan, legally known as a “qualified tuition plan.” The two types of 529 Plans include the pre-paid tuition plans and college savings plans. Pre-paid plans allow savers to purchase future “credit hours” at a reduced price. The savings plans most often consist of mutual funds chosen from among funds chosen by the state.
What are some advantages of using a 529 Plan?
A 529 Plan offers several investment funds from which to choose. The saver does not pay taxes on the money withdrawn from a 529 account when the money is used to pay for a qualified education expense. If the saver would ever claim bankruptcy, money in a 529 Plan is protected from creditors (with some limitations). Several state plans are open to savers from other states, so savers can shop around for the plan that's best for them.
What are some disadvantages of using a 529 Plan?
Money in a 529 Plan can only be used for college expenses; money withdrawn for any other purpose is subject to taxes and penalties. The investment funds in a 529 Plan are subject to the ups and downs of the stock market. The money invested is not insured like money saved in FDIC-insured savings accounts. There are many fees associated with 529 Plans. A 529 Plan may be counted among parents' assets and reduce the financial aid a student might otherwise have received.
What might explain parents' preference to save in savings accounts, money market accounts or CDs?
Parents may want to hold their savings in FDIC-insured accounts. They may not be confident that their child will go to college. Parents may feel 529 Plans are too complex, both in choosing the appropriate plan and in the tax treatment.
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Fed in Print: An index of the economic research conducted by the Fed.