Alabama 529 Plan

Alabama offers two 529 college savings plans.  One is a traditional 529 savings plan called Alabama Higher Education Fund and the other is a pre-paid tuition plan called Prepaid Affordable College Tuition Program (PACT).  Given the tax benefits for Alabama residents, one of these 529 plans may be a good option for residents.

Alabama Higher Education Fund 529 Plan

The Alabama Higher Education Fund is a traditional 529 plan that allows you to invest money today and reap tax benefits when you withdraw it to pay for qualified education expenses. 

Type: Direct and Advisor sold - this Alabama 529 plan can be purchased directly from the state or through a local financial advisor.

Fund Family: Van Kampen Investments

Minimums: To get started you can deposit $250 or set up a monthly payment plan of only $25.  The minimum subsequent contribution to Alabama's 529 plan is $25 if using an automatic investment plan.

Maximum Contributions:  Currently, you can contribute to your 529 plan accounts until there balance for a designated beneficiary reaches $300,000.  Once the limit is reached you can't contribute more but earnings can continue to grow.

Tax Benefits:  Good news for Alabama residents -- by investing in your state's 529 plan, you don't pay Alabama state taxes on qualified withdrawals and earnings.  You also get up to a $5,000 tax deduction each year for contributions you make into your Alabama 529 plan.  That equates to a $250 bonus. You also get federal income tax benefits as you do not pay income tax on your earnings.  Out-of-state participants still get the federal tax benefits.

Residency: The Alabama Higher Education Fund 529 plan is open to all United States residents, not just those in Alabama.

You can learn more about the Alabama 529 plan at the official web site.

Prepaid Affordable College Tuition Program (PACT)

Alabama also offers a pre-paid tuition plan that lets you lock in today's rates for college.  It can be used to pay for in-state public colleges as well as private and out-of-state colleges.  However, private and out-of-state college expenses will be prorated and may not be fully covered.

For more information about PACT, visit the official web site.