• 529 plans help pay for students' educational expenses.college campus image by Nick Alexander from Fotolia.com
  
  A 529 plan is a way for families to save money for their student's college education expenses. Depending on the state, these plans are managed either by universities or by the state. Since the money is designed to pay for educational expenses, it cannot be used to cover costs not associated with education. 529 plans can operate in two different ways: savings plans or prepayment plans.
  
  

Tuition and Mandatory Fees

• Money saved under either type of 529 plan can be used to cover tuition and mandatory fees at a university. The cost of tuition and the amount of money saved under the 529 plan would be determined on a prepaid plan when it was set up. Paying tuition with a prepaid plan locks in tuition rates early, while a savings plan would be used at the current market value of tuition for each year the student was enrolled.
  
  

Room and Board

• Prepayment plans do not always offer a room and board option. Some institutions will let you purchase credits toward room and board, while others will let you assign tuition over-payments to cover it. 529 savings plans can cover room and board at any university.
  
  

Other Expenses

• Only 529 savings plans can cover other college-related expenses, like books and computers. Despite their fluid structure, savings plans still can't cover expenses that aren't qualified educational expenses. Prepayment plans cannot cover any additional expenses.