A Children plan is a tax-advantaged savings plan designed to help pay for education. Originally
limited to postsecondary education costs, it was expanded to cover K-12 education in 2017
and apprenticeship programs in 2019.
The two major types of Children plans are education savings plans and prepaid tuition plans.
Education savings plans grow tax-deferred, and withdrawals are tax-free if they’re used for qualified education expenses. Prepaid tuition plans allow the account owner to pay current tuition rates for future attendance at designated colleges and universities. That means that, most likely, you can lock in a lower cost of college attendance
Children savings plans are the more common type. The account holder contributes money to the plan. That money is invested in a pre-set selection of investment options. Account-holders can choose the investment that they want to invest in. How those investments perform will determine how much the account value grows over time. Many Children plans offer target-date funds, which adjust their assets as the years go by, becoming more conservative as the beneficiary gets closer to college age.
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