Independent 529 Plan: A form of 529 college savings plan that isoperated for and by 250 private colleges.
When it comes to saving for college, 529 savingsplans have become one of the most popularvehicles, with estimates of more than $65 billionin investments. These plans are qualified state tuition programsthat enable families to finance their children's collegeeducation while achieving tax-free growth.
Since September 2003, however, there's a new kid onthe block: the independent 529 plan. Introduced by theTuition Plan Consortium, the independent 529 plan is aprepaid college tuition plan that allows contributors tolock in today's tuition rates at one of the 250 participatingprivate colleges in its network.
How It Works
According to the Tuition Plan Consortium's Web site(www.independent529plan.org), the independent 529plan operates on a simple principle: in return for prepayingcollege costs, participating institutions carry the riskand protect you from future tuition increases. The tuitionyou purchase today is guaranteed to satisfy costs at thetime your child enrolls, no matter how much tuition risesor what happens in the investment markets.
When you open an independent 529 plan, you are purchasinga certificate that represents a percent value thatmatures with tuition. By purchasing 50% of a year oftuition today, you will receive 50% of a year of tuition inthe future, regardless of inflation. Since the tuition ratevaries at each member college, your certificate representsa different value at each participating college: a $20,000certificate may be worth 1 year of tuition at one college,but 75% of 1 year of tuition at another.
For example, college A is a member of the Tuition PlanConsortium and has a tuition cost of $30,000 for this currentyear. If you contribute $10,000 into an independent529 plan this year, you will receive a tuition certificate thatcovers one third of the college's tuition cost for 1 year,regardless of tuition costs at the time of the certificate'suse. Make a $30,000 contribution and the total cost of afull year's tuition at college A is covered.
The plan features no entry fees, no annual fees, and noexit fees because the member colleges pay an annualmanagement fee that covers all costs of administering theprogram, managing the assets, and running the TuitionPlan Consortium office. However, once you've purchased acertificate, it must be held for a minimum of 3 years andredeemed within 30 years.
Since the independent 529 plan was introduced inSeptember 2003, 28 additional colleges have joined thenetwork, bringing the total to 250 member colleges. If onestudent decides not to attend a member college, thetuition certificates may be transferred from one child toanother, provided they are related.
On the other hand, what if—despite all your hopes,dreams, and planning—your child opts not to attend oneof the independent 529 plan's member colleges? Planassets may be rolled over into a traditional 529 savingsplan and funds can be used at any college throughoutthe country. However, the funds that are transferred outof the independent 529 plan are subject to a 2% annualcap on investment returns or losses.
In addition, the independent 529 plan can negativelyimpact your child's eligibility for financial aid. According toan article on the SavingForCollege.com Web site, yourindependent 529 plan's value will most likely be subtracteddollar for dollar from your financial aid awards.
The bottom line is that the independent 529 plan is aviable option when considering saving for college. It mayadd a little more confusion to your family's decision-makingprocess, but if you—and your child—have your heartsset on one of the Tuition Plan Consortium's member colleges,the independent 529 plan makes a lot of financialsense.
Independent 529 Plan at a Glance
The independent 529 plan offers many attractivefeatures that can help make your child's privatecollege education more affordable. The followingare some of the advantages highlighted bywww.independent529plan.org:
1) How many private colleges are currently in theindependent 529 plan network?
2) Tuition certificates must be redeemed within whattime period?
3) The independent 529 plan tuition certificates may betransferred from one child to another, provided theyare related. True or false?
4) Funds transferred out of the independent 529 planare subject to what annual cap on investmentreturns or losses?
5) The independent 529 plans offers families
Answers: 1) b; 2) c; 3) a; 4) a; 5) d.