Authored By Chloé Morrison

It's college application season and now could be a good time for families to start thinking about how they will pay for their child's higher education. "Like any savings, the earlier the better but like any savings, it's never too late," Senior Vice President of Pinnacle Asset Management F. Todd Tindall said. One option is a 529 plan, which is a tax-advantaged education savings mechanism and one of the most popular ways to save, Tindall said. 529 savings plans are offered by states, but they are managed by financial companies who are responsible for handling the plan's underlying investment portfolios. Similarly to how 401(k) plans changed the way people save for retirement, 529 plans have changed the way people save for education. Here's what you need to know about these savings plans. The earlier you start, the better. Once the account is started, anyone, such as family members or friends can contribute to it. The money is tax-free as long as it's used for education. "I particularly like family members trying to start a 529 in some shape or form for a young child...you get the power of savings over time," he said. Young children also don't outgrow clothes quickly and may lose interest in toys, so investing in their future could be a good option instead, he also said. "Later on when it gets to be a bigger number, [the child] learns the power of savings," Tindall said. "Is that a powerful lesson? Absolutely." What can the money be used for? Money in a 529 savings plan can be used to pay the full cost of tuition, fees, room and board, books at any college or graduate school in the United States or abroad that is accredited by the Department of Education. A change to the law also now allows families to use it to fund K-12 tuition expenses up to $10,000 a year. "In Chattanooga, that's a big deal," he said, noting the prevalence of private schools here. This is an option for people of all economic levels. One of the most beneficial aspects of a 529 is that it can be started with as little as $50. "You can fund it in small amounts and let it accumulate over time," Tindall said. There isn't much "heart" in the tax code, but the 529 option is an exception because of what it allows for, he said. "Next to love, education is the most important thing you can give," Tindall said. What happens to the money if my child gets a scholarship or doesn't go to college? In this situation, the 529 can be moved to another child's name. Otherwise, taking the money out of the plan would mean some penalties on the funds.