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College Planning: A Prepaid Education
If you have kids, you know before long they'll be grown up and ready to move on to the next part of their lives. For most, that means some sort of higher education, typically at a four-year institution. It's not news that tuition continues to increase across the board at almost every major college and university. As state governments face tighter budget restrictions, one of the first areas to be hit is the price tag of a credit hour at a state university. In many cases, even if the state budget isn't suffering, to keep pace with rising costs and inflation, universities are still forced to raise tuition. There are a lot of options available to save for college. Even if you get started late, you have a wide-range of options. One of the most popular options today, is the 529 plan. 529s are in every state in the U.S. and come in two basic forms. One is investing in a tax-free savings account which is then invested by a state administrator in an attempt to achieve a rate of return that will help you outpace inflation. The other, a prepaid tuition plan, isn't as widely available and isn't in as many states. The advantages of both are different, as are the disadvantages, but here are some of the basics of a prepaid plan. Prepaid tuition plans, a version of the 529 plan, are known as a Prepaid Educational Arrangement or PEA. There are two basic versions of the PEA. In one version, you buy units of future college tuition at today's prices. These units are generally split up in percentages or credit hours. The other version allows you to buy contracts for a specific number of years of college. (Between 1 and 5) Simply put, a PEA allows a person to buy a future college education at current college prices. You can pay for the PEA either in a lump sum, or in installations, but don't expect a windfall from this type of college savings. The states who administer the plans, guarantee that your investment will, at the very least, match college tuition increases, which in some cases, can be a lot of money if you start investing early. These plans are also very low-risk and are much more conservative than other types of college savings. They aren't recommended for late-starters though. The PEA a handy tool for aunts, uncles, and grandparents who want to help a relative with their educational costs and one major advantage is that anyone can purchase a PEA for anyone else. No relation is even necessary. One of the other drawbacks of the PEA is that it usually requires your child to choose a school in the state. But if your child is willing to abandon hopes of moving far-away from mom and dad, for a free education, it shouldn't be a problem. One advantage though is that most PEAs are transferable to other members of your family in case one of your children decides not to attend college. Also, the distributions from the PEAs cannot be taxed by the federal government, as long as they're used for tuition and fees. One of the best examples of a PEA success story was found in USA Today, (11/6/01), Jeffery Smith, a lawyer in Florida invested in that state's PEA program in 1982 after his daughter was born. At the time, the state-tuition level in Florida was at a slim $17.50 per credit hour! Smith's daughter recently graduated from the University of Florida, and when she did, tuition was $120 an hour! But, Smith locked in early, at a low rate, and was able to reap the rewards of the PEA. Not all stories end this way, and PEAs might not be right for you. But saving for college has never been easier or more convenient and it's never too late to start planning. PEAs are just one of the extensive opportunities for securing your child's future and typically contain less risk. By meeting with a trusted financial professional and finding out your options, you move one step closer to helping your child take part in the most important investment of their lives: their education.
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Article Tags: Kids, Save, 529, Prepaid College Tuition Plans, Prepaid College, Prepaid 529, To College, Saving Fo Article Source: http://www.articlesbase.com/finance-articles/college-planning-a-prepaid-education-58960.html About the Author:
Robert Valentine is a well-known expert in the matters concerning investors. His popular 529 articles have been published by several publications throughout the United States. Please visit his website, http://www.themoneyalert.com to view his column.
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