When we use the term 529, I find that many people don’t realize that they have more than one option. To clear things up a bit I’ll start by saying that there are actually two types of 529 plans: the 529 prepaid tuition plan and the 529 savings plan. Not sure what a 529 is? If so then CLICK HERE to read my past article “What is a 529?”
Today I’m going to dig a little deeper into prepaid tuition plans which fall under section 529 of the Internal Revenue Code. A prepaid tuition 529, typically referred to as prepaid tuition, allows purchasers to lock in the cost of college tuition now, at today’s prices, at eligible educational
institutions. A prepaid tuition plan is exactly as it sounds; you can pay the tuition now for future semesters (tuition does not include room and board, lab fees, books, etc.). The benefits are typically aimed towards specific institutions, usually the colleges within that particular state. Currently, only a handful of states offer prepaid tuition plans, and typically you must be a resident of that state to participate. Plus only a qualified education institution can provide this type of plan.
Payments to a prepaid tuition plan can be paid in a lump sum payment or installment payments over the course of several years. The plan allows you to contribute after-tax money that will grow tax-deferred. One of the significant benefits of a prepaid tuition plan is that you have the ability to lock in the cost of education based on today’s rates. One of the big negatives though is that you make the agreement with a specific institution so you may forgo some flexibility compared with other savings options. And the younger a child is typically, the trickier it can be to determine if they’ll go to school let alone decide which exact school they’ll be attending. So it’s important to weigh the pros and cons.
Since you’ll be paying in advance, you should do your due diligence to determine if prepaid tuition is best for you and your child’s educational ambitions. Want to see if we can help? CLICK HERE to schedule a complimentary phone consultation.
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