What Are The Advantage Of PrePaid Tuition Through A 529 Plan?
529 college savings plan is gaining immense popularity on account of its federal tax exemption benefits and summa cum laude investment dreams. A total of $200 billion was invested in 2007 whereas in 2002 only $25 billion was invested. A 529 plan is tax advantaged savings plan. It is designed to enable families to save for their child's college expenses. Legally known as qualified tuition plans, the 529 college savings plan is carried out by states, state agencies or educational institutions. The 529 plans were incorporated in Section 529 of the Internal Revenue Code. Even with rise and fall in the stock markets, these plans have performed immensely well as the amount invested is guaranteed by the state. These plans offer a plethora of investment options, from risky portfolios to moderate and ultra-conservative investment options. The 529 prepaid tuition plans are those college savings plan which increases at the same rate as college tuition fees increase. For example, a family purchases shares which covers tuition fees for half term at a state college, even after 10 years, when tuition fees have doubled, the value of the shares will remain the same. The advantage of 529 prepaid college tuition plans is that the student's tuition is fixed at current rates which provide relief to parents. The simplicity of these programs is another reason of its prominence. This plan also offers higher returns than most other investment options such as bank savings account and certificates of deposit. The principal in these investments are also risk free and often enjoys state guarantee. The state government operates the 529 prepaid college tuition plans. Tuition guarantee is based on an enrollment weighted average of state public college tuition rates. If the student takes admission in an in-state college or university, then the plan pays for its full tuition and other fees. But if he or she attends a private or out-of-state college then the plan pays the average of in-state public college tuition. The family of the beneficiary has to bear the difference. In most of the 529 prepaid college tuition plans, it is mandatory for either the beneficiary or the benefactor to be the resident of the state where the account is opened. Anyone can contribute money in the account-grandparents, parents, uncles or aunts. Prepaid tuition plans are free from federal income tax and also exempted from state and local income taxes. If the child dies or does not wish to attend college then the 529 college tuition plan can be transferred to another family member. The account owner can control the plan not the child. The 529 prepaid college tuition plan being a low risk, tax advantaged is quite popular. Since tuition rates increase twice the inflation rate, investing in 529 college tuition plan offers peace of mind to the parents. |
