Prepaid tuition plans have a number of benefits, and can be a great way to ensure you can cover your child’s college tuition and expenses. Neither will you pay tax on your account’s earnings, nor on qualified withdrawals. Like 529 savings plans, 529 prepaid plans let you make contributions with your after-tax income, giving you both state and federal tax advantages. You won’t need to pay tax on the withdrawals as long as you use them for qualified expenses, or pay tax on your earnings in the plan as they grow. Prepaid tuition plans come with a number of tax advantages. Residency Requirements: You need to be an in-state resident.State Guarantees: Most states guarantee that the funds will cover tuition, and some back these with the credit of the state.Covered Expenses: Tuition and mandatory fees.Contribution Limits: Maximum aggregate limits depend on your state.The key features of prepaid tuition plans are:
Most 529 plans are offered through state governments, and only to the residents of that state. The credits can also be transferred to another child in your family.Įligible expenses under a 529 prepaid tuition plan are limited to tuition and fees: you can’t use this kind of plan to pay for other expenses related to your child’s education such as supplies, equipment, and room and board. When your child goes to college, you can withdraw these funds and are guaranteed to cover their tuition. Once you’ve made this purchase, the plan administrator invests the money on your behalf. You can choose to pay for each unit as a lump sum or make regular installments to pay it off. Prepaid tuition plans let you pay in advance for future college tuition and fees at the current rate, by purchasing units or credits. Although they’re more restrictive than 529 savings accounts, prepaid plans let you lock in tuition rates for the future, which could represent significant savings over time.Īlong with savings plans, prepaid tuition plans make up the two main types of 529 plans, and understanding both kinds of plans and their key differences will help you to decide which will be the most beneficial for your family, and help you to pay for college. 529 prepaid tuition plans are a type of 529 plan where you can prepay your child’s future college tuition and some other education expenses.
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