Q. My child is young, and I am considering opening a 529 plan for her. Should I choose the 529 college savings plan or 529 prepaid tuition plan?
A. 529 College Savings Plan is better than 529 Prepaid Tuition Plan, for 3 reasons below:
a. Only Tuition Is Covered
The Prepaid tuition plan only covers tuition, not room and board, which could be half of the college cost. So with the Prepaid tuition plan, you only lock in half of the college cost.
b. In-state Public Schools Only
If your child is still young, there could be a high possibility that at college time, your child might attend a private school or an out of state school. Also, if you move out of state, and the child goes back to attend the in-state public school, the child still has to pay for the out of state tuition, with only the in-state tuition covered. In other words, there are too many uncertainties.
c. State Might Cancel This Plan
At this time, only slightly more than a dozen states still offer the Prepaid tuition plan, because most states found that they couldn't get the return from the plan's money that is higher than the rate the tuition increases. For the state plans that have cancelled their plans, they would return your money, only with a very low return.
In Conclusion
The Prepaid tuition plan is inadequate and uncertain, it's best to pick the 529 savings plan where you can invest in the stock market for a long time with higher expected return and more flexibilities.
A. 529 College Savings Plan is better than 529 Prepaid Tuition Plan, for 3 reasons below:
a. Only Tuition Is Covered
The Prepaid tuition plan only covers tuition, not room and board, which could be half of the college cost. So with the Prepaid tuition plan, you only lock in half of the college cost.
b. In-state Public Schools Only
If your child is still young, there could be a high possibility that at college time, your child might attend a private school or an out of state school. Also, if you move out of state, and the child goes back to attend the in-state public school, the child still has to pay for the out of state tuition, with only the in-state tuition covered. In other words, there are too many uncertainties.
c. State Might Cancel This Plan
At this time, only slightly more than a dozen states still offer the Prepaid tuition plan, because most states found that they couldn't get the return from the plan's money that is higher than the rate the tuition increases. For the state plans that have cancelled their plans, they would return your money, only with a very low return.
In Conclusion
The Prepaid tuition plan is inadequate and uncertain, it's best to pick the 529 savings plan where you can invest in the stock market for a long time with higher expected return and more flexibilities.
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