How College Savings 529 plans work

Since I have been out of work, I've been trying to tackle some projects that are long overdue.

Today is Get Official College Account Setup for A (my nephew) Day in the world of Genetic Mishap. My Nephew is five, and since he's been born my sister has regularly given me the monetary gifts he receives for birthdays, Christmas and such to put into an account for him for college. Up until today, the money sat in a bank account earning a minimal amount of interest. I've been wanting to invest the money in a stock plan for quite some time now, and I finally figured it all out today.

In case anyone else out there is in the same boat, this is how it works: A 529 plan is a plan where you put after-tax money into a stock account. Any income generated by the stocks going up will be totally tax free as long as the money is used for education expenses only. My nephew has roughly 13 years until he will be in college, with luck the money should have doubled or tripled by then so it will help him out a little. I was worried whether the money would affect his Financial Aid status (like the University's Financial Aid will just drop by whatever is in the account) but that's not true. Most Financial Aid places only take about 6% of the account into consideration as they compute need.

I think the best 529 plan is the College Savings Iowa plan. It's a government-run program, so it costs nothing to set up, you can start with a minimum of $25, and the maintenance fees are ridiculously low (I think .6% a year on money invested). They also go with Vanguard investments, which are some of the highest-rated investments around. I have also been signed up for Upromise for about two years now and so far I've earned an extra $100 through the use of that program, which will transfer directly into the 529.

I guess that's it. It feels good to have all this stuff figured out. I wish I knew the details about the 529 plan earlier, so I could have started this plan right away when A was born, but what can you do? Now I just have to keep my fingers crossed that he will even want to go to college....