If you’re looking to send a child or grandchild to a private college, you may want to consider the Independent 529 Plan, a national prepaid plan designed specifically for private and independent colleges.
Offered by the Tuition Plan Consortium, a non-profit group of more than 270 independent colleges and universities, the plan allows families to prepay tuition costs today that a child can use at a consortium member college in the future.
FEATURES OF AN INDEPENDENT 529 PLAN
- Choose from a number of private colleges. There are numerous independent colleges from around the country that participate in this program. Check with the Tuition Plan Consortium for a latest list.
- Tuition purchased at a discounted rate. The pricing of the tuition certificates are based on today’s tuition costs. In addition each college provides an additional discount. So you are buying future tuition at less than today’s cost
- No eligibility requirements. Other than age and U.S. citizenship requirements, there are no restrictions placed on who a plan owner can be or for which student they can set aside money.
- Federal and gift tax benefits. Like other prepaid plans, savings in an Independent 529 plan grow federally tax free and annual contributions of $13,000 or less are generally not subject to the federal gift tax.
- Enroll at any time and add to your account at any time. Unlike state prepaid plans that have specific enrollment periods, the Independent 529 Plan lets you enroll at any time. Also, there are a number of ways to participate—you can prepay the full cost of several years or choose to contribute a set amount each month.
- No fees. As an account owner, you pay no administrative or management fee and the total amount of your contribution is applied to tuition.
HOW IT WORKS
Every time you make a contribution to your Independent 529 Plan account, you purchase a certificate. Since each member college has a different current tuition rate, your certificate is worth a different value at each participating college.
When the child is accepted into a college that participates in the plan, the certificates you purchased can be redeemed at the college as long as its part of the consortium. The value of your savings will depend on the choice of institution. For example, your $30,000 certificate may be worth one year of tuition at college A and 80% of one year of tuition at college B.
Certificates must be held for a minimum of three years before they can be used. Also, certificates have to be redeemed within 30 years.
THINGS TO CONSIDER ABOUT THE INDEPENDENT 529 PLAN
Before making a decision about investing in an Independent 529 Plan, it’s important to consider the plan’s rules and restrictions:
- Plan proceeds can be used only for tuition and required fees. Prepaid plans tend to restrict the use of savings to only college tuition and fees. Using plan savings for room and board will generally trigger financial penalties.
- No guarantee a child will be admitted to the college. If a child doesn’t get admitted to the college of their choice, you can transfer plan savings to another beneficiary. You could also withdraw the plan savings but you will incur taxes and penalties.
- No guarantee on participation of colleges. While the Independent 529 Plan believes that the list of participating colleges will increase, there is no guarantee. And while colleges can choose to end their participation in the program, they will still honor certificates that were purchased while they were participating.
If you expect the child you’re saving for will attend an independent college or university, the Independent 529 plan may be an effective way to save for future college costs. Not only does it protect you from rising tuition rates, you don’t have to worry about how your investments perform or the economic environment and its impact on the market.
Purchasers of 529 prepaid tuition plans should carefully consider the features, risks, service and other charges and expenses associated with the Contracts. The plan's disclosure documents contain this and additional information about the plan. Please read these documents carefully before investing. You can obtain a copy of the plan document from each 529 plan sponsor.