Paying for your kids education is a major source of tension for the parents all over the world – specially in the US. There is a plan called 529 Education Savings Plan. The normal savings plan was always there but not many people know about the “Prepaids”. This seems like a good investment option. What are these plans? Here is a little explanation:
These plans provide guarantees. You buy a certain number of credit hours or semesters at today’s prices. They’ll be honored in the future, when your child goes to school, no matter how much college costs at the time. Most prepaids cover tuition and fees but not room and board (only Florida has a dormitory plan). The guarantees apply only to in-state public colleges and universities. But you can transfer the dollar value of your savings to a private college or an out-of-state school. You or the beneficiary usually has to live in the state to join the plan.
And how are the returns for these plans (normal Savings plans for 529s havent all done well!)? Well since they are based on the tuition increases… they grow much better!! Here is how the returns work:
Finally, investments in prepaids are showing spectacular gains. The return on your money equals the increase in your state’s college-tuition rate. Average rates for four-year schools are up 40 percent since 2001-hence, a 40 percent return for the average plan. Some states charge you more than the current tuition cost to build up a financial reserve. That lowers your investment return, but you’ll still do well-especially if you start when your child is young, says Joe Hurley of Savingforcollege.com (the go-to site for information on every state’s 529).
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