College Planning

Pre-paid Tuition vs. College Savings Plan

You have choices in which type of 529 plan you may start, but it is important to know the differences. Some benefits may be more important to you than others. Explore the differences now.

529 Pre-Paid Tuition and 529 College Savings Plans Differences

Understanding 529 Plan Differences

A college degree is often seen as a stepping stone to a better career. Yet, the costs of that degree are often growing at an unbelievable rate. A 529 plan can be a great way to save for college. However, there are two types of 529 plans: Savings and Pre-paid tuition.

Here's the difference between the two:

Savings plans:

The first type of 529 is an investment account. You add money to your account and invest it in a variety of different mutual funds. All 50 states offer these 529 plans, and they are often more flexible because you can use the money for most qualified college expenses including tuition, room and board and textbooks.

Prepaid tuition plans:

The second option is a prepaid tuition 529 plan. With these plans, you prepay for semesters of college tuition at today's rates. This locks in the price so you don't have to worry about college tuition going up in the future. These plans are more restrictive and not all states offer them. You need to be aware that these types of 529 plans only lock in the tuition at schools listed on the plan. If your child attends a school that isn't on the list, you'll be able to transfer over the value of your account, but there's no guarantee that it will be enough to cover the full cost of tuition. Also, the prepaid plan in your area may not be able to be used for expenses beyond tuition, such as textbooks or room and board. Be sure to investigate plans in your area thoroughly if this is an option you're considering.

The following chart is a side by side comparison outlining the primary differences between the two types of 529 college savings plans.

Prepaid Tuition Plan College Savings Plan

Locks in tuition prices at eligible public and private colleges and universities.

No lock on college costs.
All plans cover tuition and mandatory fees only. Some plans allow you to purchase a room & board option or use excess tuition credits for other qualified expenses. Covers all "qualified higher education expenses," including:
  • Tuition
  • Room & board
  • Mandatory fees
  • Books, computers (if required)
Most plans set lump sum and installment payments prior to purchase based on age of beneficiary and number of years of college tuition purchased. Many plans have contribution limits in excess of $200,000.
Many state plans are guaranteed or backed by state. No state guarantee. Most investment options are subject to market risk. Your investment may make no profit or even decline in value.
Most plans have age/grade limit for beneficiary. No age limits. Open to adults and children.
Most state plans require either owner or beneficiary of plan to be a state resident. No residency requirement. However, nonresidents may only be able to purchase some plans through financial advisors or brokers.
Most plans have limited enrollment Enrollment open all year.


Source: Smart Saving for College, FINRA®

 

For more information on 529 plans, visit the Protective Learning Center.

Was this article helpful?
4
4

All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax-related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Companies and organizations linked from Learning Center articles have no affiliation with Protective Life or its subsidiaries.

WEB.1721.07.15