College savings plans still underutilized

photo Christopher Hopkins

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Saving for college remains one of the greatest challenges for young American families as tuition rates continue to rise faster than inflation. A 529 college savings plan remains a powerful but underused tool for setting aside the necessary resources. And despite some significant changes wrought by the recent tax cut legislation, these plans continue to provide attractive benefits and deserve a closer look.

States have long recognized the need to assist their citizens in saving for college. Early iterations of discounted "prepaid" tuition allowed residents to reserve a slot in their own state's colleges and universities. Then in 1996, Congress approved section 529 of the Internal Revenue Code creating a new variant of the prepaid tuition plan that could be applied to any approved institution of higher learning, including technical schools, regardless of state residency.

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