529 Prepaid Tuition Plan
- Savings plan designed to increase in value at the same rate as college tuition.
- Can be sponsored by a state or a private college or university.
- Contract plans offer pre-purchase of a specified number of years of tuition. Unit plans offer pre-purchase of a percentage of tuition costs.
- Future college tuition costs can be locked in at today’s prices.
- Offers a form of guaranteed return, as account value is designed to increase at the pace of tuition cost inflation.
- Beneficiary must attend one of the plan’s participating colleges (typically a public college within that state) in order to receive maximum benefit.
- Covers undergraduate tuition costs and, depending on the plan, may cover graduate tuition costs.
- Most plans require all withdrawals to be made within 10 years from when the student starts college and by age 30.
- Distributions not used for qualified higher education expenses are subject to federal income tax plus a 10-percent penalty. Taxes and penalties apply only to earnings in the account.
Financial Aid Impact
- Low impact.
- Treated as an asset of the account owner. Asset value equals the refund value of the plan. (Previously treated as a resource and reduced aid dollar-for-dollar.)
- Qualified distributions are not considered income of parents or student.