State Prepaid Tuition Plan
“Many states offer prepaid college plans that promise
to pay some or all of your child’s tuition and other
college expenses, even if college costs go through the roof.”
- Nancy Lloyd, author of
Simple Money Solutions
Thanks to student loans, too many kids today are graduating
from college already tens of thousands of dollars in debt.
It’s time for parents to pick up the reins and start
saving for their children’s future. These new government
plans make it more advantageous than ever.
Passed in 1996, the Qualified State Tuition Program (QSTP)
allows every state to develop its own 529 plan, named for
the IRS Section that regulates it. There are two types of
529 plans. The first is the prepaid tuition program, in which
you can buy your child’s future education at today’s
tuition prices.
There is no national publicity campaign in force for the
two plans that fall under the Qualified State Tuition Program.
Each state is responsible for promoting its own plan. For
the best information available on the Web, go to www.collegesavings.org
and click on your state to see what’s available. You
may purchase any state’s College Savings Plan no matter
which state you live in (not so of a prepaid tuition plan).
However, there’s good and bad aspects of prepaid tuition
plans. The chart below presents some sample issues for you to consider when deciding on an investment vehicle for college. You should thoroughly research the advantages and disadvantages of the QSTP you are considering before making any decision.
|
Advantages
|
Disadvantages
|
|
Allows you to lock in today's tuition rates.
|
Plan proceeds may count against your child's eligibility
for financial aid.
|
|
Great idea if your child knows he or she wants to
attend an in-state college.
|
Proceeds only cover in-state college tuition programs.
|
|
Most plans allow you to transfer proceeds to another
family member.
|
If your child does not attend college, you will get
your money back--possibly with interest--but not likely
as much as if the money had been invested elsewhere.
|
|
Proceeds cover tuition and all mandatory fees.
|
Proceeds will not cover room and board, textbooks,
or equipment.
|
|
Federal tax deferral.
|
Limited enrollment period each year.
|
|
State tax deductions on contributions.
|
Some states set age limits, such as newborn through
9th grade.
|
|
Some plans offer state income tax exemption.
|
All states enforce residency requirements.
|
|
Plans guaranteed by state governments.
|
|
|
