529 Prepaid Tuition Plan

529 College Savings Plan

An account into which persons deposit funds to save for university-related expenses. The funds in a 529 college savings account are tax-deferred and, if used directly to pay for college, tax exempt at the federal level. They are sometimes exempt at the state level as well. The plan exists in an attempt to make post-secondary education more affordable. See also: IRA, 401(k).

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529 prepaid tuition plan. With a prepaid tuition plan, you purchase tuition credits at current rates to be used at some point in the future when your beneficiary attends one of the colleges or universities participating in the plan.

Most prepayment plans are sponsored by individual states and apply to the public institutions in the state, some state plans cover both public and private institutions in the state, and the Independent 529 plan includes more than 200 participating private institutions nationwide.

In the case of state plans, either you or your beneficiary may have to live the in the sponsoring state.

You owe no income tax on any appreciation in the value of the tuition credits if they are used to offset tuition, and you may be able to transfer the face value of the credits to a nonparticipating school if your child doesn't attend a participating one.

Some states and the Independent plan guarantee that your credits will cover the cost you prepay.