529 Plans: The Important Definitions

Here at MomVesting, we're excited to bring you a series that compares the many 529 college savings plans offered in the United States. We've already talked about the basics of 529s, and we've even given you a few 529-related ideas to mull over.

Now, before we embark on the posts for each state's individual plans, one last post remains: a good ole definitions post. The following terms will come in handy as we continue through the 529 series, so roll up your sleeves and take good notes: there's a quiz later.

Beneficiary

You'll see this term quite a bit. In short, this is the person for whom the 529 plan is set up. This person could also be defined as "the future college student" or "the child." Basically, whoever will be using the funds for a college education is the beneficiary.

Residency Requirement

Some plans require a person be a resident of a certain state before they can participate in a 529 plan. In these cases, the term "residency requirement" gets tossed around. However, more often than not, 529 plans do not have a residency requirement, which means they are open to any US citizen. But some plans do require that either the beneficiary or the person contributing to the plan reside in that state, so it's an important term to keep in mind.

Adviser-Sold Plan

Also known as a broker-sold plan, this type of 529 requires that a financial professional, broker or adviser guide the purchaser through the plan details and the purchase.

Direct-Sold Plan

For those do-it-yourselfers out there, a direct sold plan allows you to begin investing without the help of or intervention of a financial adviser or broker.

Contributions

Your contribution is simply the money you're going to be putting into the plan. There are a few variations on this theme: Most plans have a maximum contribution per beneficiary (a maximum dollar amount that can be placed in the plan), but there is also a minimum contribution level for some plans (or the lowest amount of money one can invest in the plan per time period, which is usually a month).

Taking this a bit further, some plans do have an automatic contribution option. This means money is taken out of a certain account or even a paycheck automatically and placed directly into the plan. The time periods for contributions are often variable and is set up based on your contribution desires.

Portfolios

The portfolio is where your money will go in the 529 plan. Unlike a basic savings account where one might add some dollars and gain a bit of interest over time, putting money into a 529 plan gives it a good chance to grow tax-free and hopefully increase over time. The portfolio options are often numerous as well, so let's look at some of these options:

• Automatically-Adjusted Risk Brackets – As Junior approaches college age, the portfolio will become more conservative. Additionally, there are often multiple age-based options ranging from very conservative to aggressive in investing nature, so you needn't worry about adjusting your own risk brackets.
• Static Options – This option remains static, or stays in the same risk brackets, over the course of the plan, but it can include mutli-fund and individual fund options.
• Multi-Fund – The multi-fund option invests your money in more than one fund.
• Individual Fund – The individual option keeps your money in one fund. There are usually a variety to choose from, and these funds also often offer options that appeal to investors of every nature, from the conservative to the aggressive to everything in between.

So that's it! We have defined all of the 529 terms and are ready to start breaking down the individual state plans. If you need more information about 529s before we get started, check out our 529 series so far.

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