If you have children, or plan to have children, the topic of education has probably come up. Do you want to provide for your child's education?

What if they want to go to a private school? What if you want them to go to a private school? And finally, how will you pay for their tuition?

Education can be a big financial challenge. From Montessori to MIT, the costs of education have nearly tripled over the past four decades , and can seem overwhelming. Fortunately, there are savings plans that can help.

What Is a 529 Plan?

A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. It's one of the most powerful tools for covering education expenses, so it's important that you understand all of the fundamentals before you start planning.

Essentially, contributions to a 529 plan are made with after-tax dollars, but those contributions then grow tax-free, and withdrawals are also tax-free when used for qualified education expenses. This tax-free growth is the most significant financial advantage of the 529 plan.

However, keep in mind the fees and expenses associated with the particular plan. Whether a state tax deduction is available will depend on your state of residence. State tax laws and treatment varies.

So what can you buy with those tax-free 529 plan distributions? Let's find out.

Speak to a Wealth Enhancement advisor about the benefits of a 529 plan.

Paying for Tuition, Housing & Supplies with 529 Plan

First and foremost, 529 plans can be used to pay for tuition. Their tax-free distributions allow you to cover tuition expenses without incurring additional tax liabilities. However, a 529 plan can be used for more than just tuition. Fit your plan into your education budget with the following ideas:

• Housing. Campus housing can be paid through 529 distributions, including college room and board fees. Off-campus housing rentals qualify up to the same cost of the room and board on campus.
• Books and Supplies. Textbooks required by a specific course are qualified expenses. Schools set the budget limit for books and supplies.
• Needs and Services. Special needs equipment and services qualify for 529 distribution. Students using equipment for mobility may be eligible for 529 distribution purchases. Depending on the circumstances, other modes of transportation may also apply.

Using 529 Plan to Buy a Computer

Many don't realize that computers and some other electronics are included on the list of qualified education expenses. With more and more of education occurring online, even at in-person institutions, you could be able to use 529 funds for technology needs.

•  Personal Computer. Computers must be used primarily by the student during any of the years the student is enrolled at the eligible educational institution.
• Software may qualify as a 529 distribution expense, but only if it's used by the student and required by a class. For example, technical engineering or design classes may use a particular program that students must purchase.
• Internet. Lastly, under certain circumstances, internet services can be paid for using 529 funds. Check with your internet service provider (ISP) for more details.

Keep in mind that these items must be required as part of the students' study programs to qualify.

Speak to a Wealth Enhancement advisor about planning for educational expenses.

The Long-Term Benefits of Early Investment in a 529 Plan

Investing in a 529 plan early can greatly amplify the potential benefits for your child's education fund. By investing early in your child's life—or even before they're born—you can take full advantage of compounding returns over time.

• Compounding growth. Contributions to a 529 plan benefit from tax-free compounding, meaning that all investment gains can be reinvested without taxation.
• Start small. By starting early, it means that you can start small. Even if you don't have a child yet, small investments made early can grow significantly over time.
• More aggressive options. An early start can potentially allow for a more aggressive investment strategy. Because you have more time to "ride out" market volatility, starting early can set you up for growth in the long-term.

529 Plan vs. Coverdell Education Savings Account

We commonly receive questions from clients about the difference between a 529 plan and a Coverdell Education Savings Account (ESA). 529 plans and Coverdell ESAs both offer tax-advantaged growth and tax-free withdrawals for qualified education expenses, but they do have significant differences. Here's an overview of the basics:

Additionally, you can only contribute to a Coverdell ESA if the beneficiary is younger than 18. Then, the beneficiary must use the funds before they turn 30, or they may be penalized.

It may seem a bit complicated at first glance, but a qualified financial advisor can assist you. Understanding these differences can help you make an informed decision about which plan will best support your educational funding strategy.

Investing in a 529 Plan

Keep in mind that 529 plans vary by state, so it's important to understand the specific requirements and benefits that your state's plan can offer you. Be sure to check with the educational institution as well. As mentioned earlier, each state and school may have different restrictions and requirements for using 529 funds.

If you are unsure about anything, your plan sponsor may be able to provide some guidance. And, as always, be sure to chat with your financial advisor before making any investment decisions.

Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. Investing involves risk, including possible loss of principal.