Like 529 plans, Prepaid Tuition Plans are also state-sponsored. These plans differ significantly from the other options here, because they allow you to lock in the cost of college at today's prices. They can be good options if you think your child will attend a state university. (In a state-sponsored program, your child needs to go to college in that state to get the maximum benefit of this program.)
The answers to our questions:
- The amount you can contribute varies from plan to plan, and there are generally no income restrictions.
- Prepaid Tuition Plans usually invest in state-backed bonds, because they aim only to keep up with rising in-state university costs.
- Gains are tax-deferred and withdrawals are tax-free under the current tax code.
- Unlike the other options here, you cannot control what the plan invests in. Although the account is technically in your child's name, you retain control of it.
- The money can be used for college funding only. If your child decides not to attend a state college, you can transfer the money to another child's name.
Traditional IRAs >>