If you’re a typical parent, it’s likely you’ve never heard of the Michigan Education Trust (MET) but it spearheaded the 529 plan movement. Proposed in 1986, this program was intended to “help parents guarantee their children the opportunity of a Michigan college education.” This new fund afforded parents the option to pay a nominal stipulated amount in return for the state agreeing to pay tuition at any Michigan public college.

The plan proved to be largely successful. Within four years over 50,000 Michigan citizens had enrolled in MET. Inspired by this, additional states decided to launch their own version of the program. In 1990 Michigan was able to alleviate even more of the financial burden for those who participated by winning a suit against the IRS to make the program tax-exempt.

This win led to a widespread bipartisan effort to have the tax-exempt status be applied to all college savings plans and qualified state tuition programs. This was achieved in 1996 with the passing of the Small Business Protection Act. Congress added Section 529 to the Internal Revenue Code and thus the 529 Plan was born.

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Disclosure

College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the collegeboard.org. Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.