The College 529 plans including the Prepaid College 529 are devised to help students and their families to pay for college tuition costs. They are called 529 because of the federal tax code section through which they have been given authorization. Tuition prepaid plans and college savings plans are offered by the state. Every one of the states offer either prepaid tuition plans or savings plans.
The Prepaid College 529 plan allows an individual to purchase units or contracts in which the value of the plan that is purchased will remain the same in the future despite inflation. This secures your investment and it remains at no risk. When you need to use it – it is there. It is not affected by the stock market trends. The amount of the tuition which is prepaid only remains the same if it is used at an in-state college.
So the major benefits of the prepaid plan are the guarantee and the low risk. The guarantee of the prepaid account is the responsibility of the state government. They must match any increase in the in-state tuition. The Prepaid College 529 plan is low risk. This investment is for those college students who already know which college they will be attending in the future. Performance wise, they are not as high risk as investing in CDs or savings accounts plus their performance is higher.
The Prepaid College 529 plan has some downfalls as well as the good points. The state residency requirement is a restriction which limits participation in the program. Also if the student decides that an out-of-state college or a private college is best then a prepaid tuition plan may not be enough to cover the costs. Prepaid plans are based on in-state tuition costs. If you do cancel the Prepaid College 529 plan there can be penalties which include losing the interest and the cost for canceling the plan. There are rules and restrictions governing each one of the 529 plans. Each plan can face rule changes independently of the other.
