Differences Between 529 Prepaid College Tuition Plans and College Savings Plan

Are you looking at all of your options for saving for your children’s college tuition or maybe even your own? Here is a brief overview of some of your options on the 529 plan. Some of these plans are sponsored by state, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

Prepaid Tuition Plan 

• This plan will lock in the price of tuition at all eligible colleges and universities.
• All of the options cover tuition and mandatory fees only. Some of the plans will allow you to purchase a room and board option or use extra tuition credits for expenses that are qualified.
• Most of these plans look at the age of the beneficiary and the number of years of college tuition that is purchased to set a lump sum and installment payments prior to the purchase.
• Many of the state plans are guaranteed or backed by state.
• There are usually age and/or grade limits for the beneficiary.
• Most of the state plans require that either the owner or the beneficiary of the plan be a state resident.
• Most of these plans have limited options for the enrollm
  ent period.

College Savings Plan

• This plan has no lock on the cost of college.
• All qualified higher education expenses are covered, including:
  • Books
  • Room & Board
  • Tuition
  • Mandatory fees
• Many of these plans have contribution limits in excess of $200,000.
• There is no state guarantee on investments. The options are subject to market risk and may make no profit or possibly decline in value.
• There are no age limits and these plans are open to adults and children.
• There is no residency requirement BUT nonresidents are only eligible to select plans through financial advisers or brokers.
• You do not have to worry about rushing to apply in time because enrollment is open year round.

Information from: https://www.sec.gov/investor/pubs/intro529.htm