Every year, thousands of families struggle to find financial aid to help pay for their children’s college tuition. This is no major shock, considering that a single year of college can cost up to tens of thousands of dollars. While most scholarships are privately funded, the 529 plan is supported by state or government institutions. At its core, the 529 plan simply assists families in saving for college. It is broken down into two categories—prepaid and savings plans. If the family chooses the prepaid plan, it pays for the expenses of living at a college ahead of time. If it favors the savings plan, the family’s money goes into investing money, generally into investments. 529 plans must be applied to in order to be gained.

There are a number of advantages to using a 529 plan. First of all, the one who pours money into the fund is the one who ultimately controls the withdrawals. The recipient, the college student, has no say. Thus, reckless prospective college students cannot pull out random amounts of cash to pay for iPods or shopping sprees instead of saving up for their education. Another key advantage is that when you receive money from a wise investment, the government offers heavy tax breaks. Basically, any money you make is yours to keep. Finally, keeping a 529 plan is effortless. Upon choosing either a savings or prepaid plan and filling out the correct type and quantity of forms, you can pretty much do whatever you want; the 529 plan does not demand that you repeatedly come back to maintain it.

Disadvantages of the 529 plan come mainly when one does not use it. If unused, the earnings resulting from a 529 plan become subject to roughly a 10% penalty from the government. Also, the tax cuts on the earnings will drop, and they will be taxed normally. If you want to prevent these losses from happening, you should transfer the funds to a younger relative who intends on going to college.

If you choose to invest on your own, you will receive no governmental penalties for not using the money. The downside is your money will be subject to normal taxation. If the idea of investments does not appeal to you, and you are willing to search for a good amount of time, you could always take the scholarship route and earn enough money to pay at least part of your way through your college career.