The plans were named after Internal Revenue Code Section 529, which was enacted by Congress with the 1996 Small Business Jobs Protection Act and amended by the 1997 Taypayer Relief Act. The law created special tax benefits for qualified state tuition programs, which include prepaid tuition plans and savings plans. Although Michigan introduced the first prepaid tuition program in 1986, and Kentucky offered the first pure savings plan in 1990, it was when Congress enacted section 529 a few years ago that savings plans began to proliferate. Not only have more states created 529 savings plans, but many also have expanded them so nonresidents can participate and money saved can be used at colleges anywhere in the country. Many states also have increased investment options and have hired well-known mutual fund companies to manage the money, making the plans even more attractive.
Some plans now offer state-tax benefits.
They re becoming more popular because there are more plans now than there were a year ago. Any state that doesn t have a 529 savings plan has at least been thinking about putting one in place. More new investment companies are in the picture, so they are offering a greater range of investments. The Web site, among other things, rates each state program for residents and nonresidents. Advantages Many advisors who specialize in college planning say they are excited about 529 savings plans because they offer benefits that haven t been available before.