Prepaid Tuition 529 Offers Purchasing Flexibility For Parents And Grandparents

The basic definition of prepaid tuition 529 plans is that anyone, including parents, grandparents or others, may purchase tuition for a child today at a guaranteed rate in the future. The prepaid tuition 529 plan covers at any eligible college or university within the state where the plan was purchased.

The plan assumes the risk of covering the rising costs of tuition. Therefore, you will have to pay a premium. Only 18 states currently offer prepaid tuition plans.

The tuition amounts (years or units) can be purchased in one lump sum, or through monthly installment payments. Investments are made to gain interest earnings to cover tuition increases. The following FAQs may provide some insight to determine if a prepaid tuition 529 plan is best for your family.

What is the difference between a prepaid tuition 529 and a savings and investment plan?

A savings and investment plan is similar because money is contributed to a college savings account for education expenses. However, unlike the prepaid tuition 529 program, a savings and investment plan offers a variable rate of return. Some plans even guarantee a minimum rate of return.

Is one plan better than the other?

The plan choice is dependent upon the family's investment needs and goals. Some states offer both the prepaid tuition 529 and savings and investment plans. Each plan is designed to be affordable, flexible and provide tax advantages while securing the education costs for children.

Can prepaid tuition 529 plans only be used at in-state schools? Generally, prepaid tuition 529 plans are designed for in-state public universities and colleges. However, some are accepted at in-state private institutions and out-of-state public and private institutions. This depends on the rules of a particular plan. Does a full or partial scholarship affect the prepaid tuition 529 plan? This depends on what the scholarship covers. If some or all of the student's tuition and fees are covered, several options are available. The unused benefits can be transferred to another family member, funds may be held for future use, or a refund can be issued. What if the child decides not to attend college? Verify the plan's rules and restrictions. Refund and transfer options are available. Is college admission guaranteed by purchasing a prepaid tuition 529 plan? No. Having a prepaid tuition 529 plan is not an admission requirement. Can a prepaid tuition 529 plan be rolled over to another 529 program? Rollovers are allowed in most cases. The account owner can transfer the funds to another eligible beneficiary. The new beneficiary must be a family member of the original beneficiary to avoid penalties and income tax payments. Each plan differs, so check to determine of other requirements may apply.