Most students in college, find saving money the most difficult task. Generally, many parents believe that 529 plan is one of the best ways to build tax-advantaged savings for college. What exactly is the 529 plan? The 529 saving plan has been designed specially for college students to encourage them to save money. Legally the plan is known as "qualified tuition plans." States, state agencies, or educational institutions are authorized sponsors of this plan. Section 529 of the Internal Revenue Code, underwent few changes regarding the tax codes in the year 2006. The modified plan made all the earning under the plan tax free, provided the amount is used for educational expenses. The changes implemented eliminated any change in status for earnings under the 529 plan. Hence, the plan was established as one of the premier savings plans for college savers.

Te 529 plan is mainly of two types :

• Pre-paid tuition plans
• College savings plans

All the plans under the 529 section are sponsored by at least by any one of the fifty states and District of Columbia. Apart from these districts there are few private colleges and universities who sponsor the pre-paid tuition plan.

Before any family decides to take any of the 529 plan, they must thoroughly go through each of them and then decides which plan may be right for their needs. If you want to save money on certain purchase units or credits at participating colleges and universities for future tuition then Pre-paid tuition plans would be netter for you. At times, this plan also allow college savers to save money on room and board. These plans are mostly sponsored by state governments but require residency proof. Since, pre-paid tuition plans are sponsored by state governments therefore it offers a guarantee to the investments.

Whereas, in case of College savings plans it allows college saver (also called the "account holder") to create a student account to pay beneficiary's eligible college expenses. The account holder is offered with several investment options and he/she can choose the one that best suit their requirements.