Prepaid Tuition

A prepaid tuition plan, or Section 529 plan, is an excellent vehicle for college savings. These plans are guaranteed to increase in value at the same rate as college tuition. Therefore parents can lock in tuition prices at today's rate with no risk to their principal. Many plans are guaranteed by the full faith and credit of the state. However these plans may require the account owner or the beneficiary be a state resident when the account is opened.

Anybody, not just parents, can contribute to a prepaid tuition plan. Prepaid tuition plans can be an excellent estate planning tool. Prepaid tuition plans are exempt from federal income tax, and may be exempt from state and local income taxes. In addition, some states offer a full or partial tax deduction for contributions to the state's plan.

Plans have annual enrollment deadlines to lock in the current year’s rates so interested individuals should be sure to remember the deadline as part of their planning process.