Overview:
Section 529 plans are considered one of the best options for saving for a child’s college education. They are called “Section 529” plans after the specific IRS code that permits their use.There are two types of Section 529 plans: savings accounts and prepaid tuition plans. This article specifically reviews Section 529 Prepaid Tuition plans.
Section 529 prepaid tuition programs allow for after-tax contributions to be made on behalf of any designated beneficiary (not just a child). These contributions either purchase units of tuition or semesters of tuition, in today’s dollars. The program in turn promises to pay for an equivalent amount of tuition in the future, regardless of how much college costs actually increase.
Unfortunately, participation in a prepaid tuition program does not guarantee a child will be accepted into a university or school. In these cases, the plan either refunds the tuition or pays it to another school.
Ideal Investor:
A Section 529 Prepaid Tuition plan is ideal for parents or grandparents who have some combination of the following factors:
- They have the ability to set aside a significant amount of money now.
- They prefer the safety of a fixed rate investment to stock market volatility.
- They do not expect their child to attend an out-of-state or private school.
- They live in a state that offers an income tax deduction for contributing.
- They have multiple children, raising the chances one will attend school in-state.
- They want the freedom to reclaim the assets for any reason they choose.
- They would like to fund a loved one’s college while significantly reducing the size of their estate.
