529 plans all cover the same expenses
The 529 college savings plans can be used to cover tuition, fees, room, board, books and a computer (if the school requires students to have one), but prepaid plans typically only cover tuition and fees. Some states, like Florida, offer separate programs to cover housing costs, but many don't.
Many families also don't realize that 529 funds are portable, says Daniel Reyes, principal and head of Vanguard's education savings group.
"We often find ourselves answering the question about whether or not you have to go to college in the same state as the 529 plan that you use and the answer to that is no," he says.
It's important to note that while families can apply all funds in a 529 college savings program to any accredited school they wish, prepaid plans are designed for public colleges in the program's home state.
Should the student with a prepaid plan attend a private or out-of-state college, families can always apply the amount they've invested toward college costs, but they could lose out on interest. Many plans will kick in a prorated amount of interest, but how much varies by state.
They're only for 4-year college students?
Not so, says Pamela McNulty, senior director with TIAA-CREF Tuition Financing Inc., a full-service financial services organization that manages 11 state 529 plans.
"You can also use the funds at community colleges and technical schools," she says. "It's not just the four-year private or four-year public (schools)."
Both 529 prepaid and college savings plan funds also can be used at any accredited vocational or professional training institution, but attending unaccredited schools or certain foreign institutions (with some exceptions) won't count. In those cases, families will have the option to either roll over their 529 cash to another beneficiary or withdraw their funds and pay back taxes, as well as a 10 percent penalty on plan earnings.