An SEC guide, “An Introduction to 529 Plans,” says that the prepaid-tuition type of 529 plan permits you to buy future tuition “at today’s prices.” That’s really not true. In almost all state-run prepaid plans you are buying future tuition at a price higher than current tuition rates.
Suppose, for example, a given college now charges $10,000 a year for tuition. To lock in a future year’s tuition, you might pay $10,500, $11,000, or more. In some plans, this premium can be substantial enough that it will take years of tuition hikes before it is earned back.
The private-college Independent 529 Plan (www.independent529plan.org) is a prepaid-tuition plan with a difference. though. All participating colleges must offer a discount from their current tuition rates. For example, if a college’s current tuition cost is $10,000, the discount is 1 percent annually, and you had 10 years until your child started college, you’d pay about $9,000 today to cover one year of future tuition.
