529 Prepaid Tuition Plan

DEFINITION of '529 Prepaid Tuition Plan'

A tax-advantaged method for paying future college tuition costs at current prices. 529 prepaid tuition plans are authorized by Section 529 of the Internal Revenue Code and allow the account holder to purchase tuition credits at their present price even though they will not be used until a future year, when tuition costs will have most likely increased. Plans are state sponsored and only available in some states, but it is possible to participate in a prepaid tuition plan outside of the account holder's current state of residence.

BREAKING DOWN '529 Prepaid Tuition Plan'

If the child who is the account beneficiary dies, decides not to attend college, decides to attend college in a state other than the one in which the plan was established or decides to attend a private college, prepaid tuition credits may be transferred to another child, contributions may be withdrawn, or the in-state value of the prepaid credits may be transferred to an out-of-state or private institution. Parents, relatives and friends are all allowed to contribute to the child's account, which can be especially helpful to grandparents who want to give money to their grandchildren in a tax-friendly way.

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RELATED FAQS
  1. Who benefits the most from prepaid expenses?

    Learn who benefits most when expenses are prepaid. Individuals and businesses often make payments, such as rent or insurance, ... Read Answer >>
  2. Does working capital include prepaid expenses?

    Discover how prepaid expenses can be classified as short-term assets included in the calculations for determining working ... Read Answer >>
  3. What options do I have to save for my child's education?

    There are numerous options available to invest savings for a child's education: State-sponsored "529" college savings plans: ... Read Answer >>
  4. Does private school tuition figure into our monthly debt when calculating our DTI?

    We spend about $1,000/month on private school for our kids. ... Read Answer >>
  5. Why should I register a prepaid credit card?

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