State-to-State Variations

Because each state can control some of the features of its own plan, there are variations from state to state. Most plans follow the same general scheme (and federal requirements), but make sure you compare plans among states other than your own. Most states don't require residency in order to participate, so shop around different states for the best deal. Click here for information that will help you compare states and choose the right plan.

In the next section, we'll look at some of the things that make the 529 plan so attractive.

Prepaid Tuition Option With the prepaid tuition option, parents, grandparents and anyone else can lock in today’s tuition rates, and the program will pay future college tuition at any of the state’s eligible colleges or universities. The program will also pay an equal amount of money to private or out-of-state institutions. You will usually deal directly with a state agency when setting up a prepaid tuition plan. You buy tuition units (or years) either with a one-time lump sum purchase or monthly installments. If you opt for the prepaid route, then that money is pooled with other prepaid sums from other account owners and invested by the program in order to grow to meet (or even exceed) future tuition needs. The prepaid tuition account also works differently in regard to eligibility for financial aid. The money paid out from the prepaid tuition 529 account offsets the eligibility for financial aid dollar-for-dollar. In other words, if your prepaid tuition account pays $10,000 for tuition one year, then your child will be seen as needing $10,000 less for financial aid.