Alabama’s Prepaid Affordable College Tuition Program (PACT) is open to everyone; money invested will grow at least as fast as college tuition in Alabama. As is the case with all “Section 529” programs, no tax will be due if withdrawals are used to pay for college, starting next year.
What happens if you purchase Alabama’s prepaid tuition contract and your child ultimately decides to attend Stanford or Yale or another non-Alabama university? The contract value, increased at the same rate as the weighted average of tuition and fees at Alabama four-year institutions, will be available to pay for tuition at any college. This might be an attractive investment because Alabama is hiking its tuition and fees by 9.2% this year, following an increase of 4.9% last year and 7.0% the year before.
Moreover, Alabama is not the only 529 plan open to nonresidents where investment performance is tied to tuition and fee increases. The Colorado Prepaid Tuition Plan offers tuition units indexed to average Colorado public tuition and fees (4% minimum annualized return). And College Savings Bank’s CollegeSure CD (available through the Arizona and Montana 529 plans) provides a return each year determined by a national index of private college costs (4% minimum). The index for the year ended July 31, 2001 rose by 5.2%.
