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State Prepaid Tuition Plans

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Many universities offer prepaid tuition plans wherein you can invest in your child’s college education today, thereby securing your child’s tuition rates in today’s market rather than paying the tuition rates that will be in place when they actually attend.

These plans all have different qualifications and terms, but most work like a savings plan that locks in the rate your child will pay for college tuition. For each child, there is a maximum amount that you can invest in these programs each year.

When participating in these plans, parents benefit from state tax deductions and deferred state taxes on the interest earned. Taxes for these programs are also paid at the child’s lower tax rate, giving parents another reason to take advantage of these programs. However, one disadvantage for these state sponsored programs is that the tax advantages do not apply to federal taxes.

Some states offer prepaid plans that offer your child the option of attending any state sponsored college or university. Others are designated for only one school, so it is in your best interest to be aware of which type of program you are investing in. However, it may be that your state offers these benefits not only to public institutions of higher learning, but to private colleges and universities as well.

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