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| Section 529 Plans | Section 529 plans, also called as Qualified Tuition Programs (QTP), belong to the best ways of saving for your children's college education. Two types of section 529 plans are known. They are: prepaid tuition plans and college savings plans.
Prepaid tuition plans are college savings plans that are guaranteed to increase in value at the same rate as college tuition. For instance, if a family purchases shares worth half a year's tuition at a state college, these shares will always be worth half a year's tuition -- even 10 years later, when tuition rates may have doubled. The main advantage of these plans is that they let a student's parents to lock in tuition at current rates, offering peace of mind. The plans are simply and this is also a benefit. Plans propose a better rate of return on an investment than bank savings accounts and certificates of deposit. The plans also include no risk to principal, and often are guaranteed by the full trust and credit of the state.
Starting in 2004, individual educational institutions can propose their own prepaid tuition plans. The Independent 529 Plan is such a plan proposed by a group of private colleges. Most plans require that either the account owner or the beneficiary be a state resident when the account is opened. Anybody can invest to a prepaid tuition plan, including grandparents and friends of the family. This allows people give the gift of education. Section 529 plans are especially nice for grandparents, because of the estate planning features. Prepaid tuition plans do not guarantee admission into college.
Section 529 college savings plans are tax-exempt college savings vehicles with a low impact on need-based financial aid eligibility. Unlike prepaid tuition plans, there is no lock on tuition rates and no guarantee. Investments depend on market conditions, and the savings may not be enough to cover all college costs. There is a certain risk but these plans give you an opportunity to earn potentially greater returns.
Most 529 college savings plans propose an adaptive asset allocation strategy based on the age of the child or the number of years until admission. These plans start off aggressively when the child is younger, and gradually switch to more conservative investments as college approaches. Most 529 college savings plans also propose a variety of risk-based asset allocation portfolios, ranging from aggressive 100% equity funds to more conservative balanced funds and money market funds.
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