529 Prepaid Tuition Plan

AAA

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.

INVESTOPEDIA EXPLAINS '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decides to attend a private college, prepaid tuition credits may be transferred to another child, contributions may be withdrawn, or the in-state value of the prepaid credits may be transferred to an out-of-state or private institution.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.

RELATED TERMS
  1. 529 Savings Plan

    A tax-advantaged method of saving for future college expenses ...
  2. Coverdell Education Savings Account ...

    A tax-deferred trust account created by the U.S. government to ...
  3. Lifetime Learning Credit

    A provision of the U.S. federal income tax code that lets parents ...
  4. 529 Plan

    A plan that allows for the prepayment of qualified higher education ...
  5. Full-Time Student

    A status that is important for determining dependency exemptions. ...
  6. Education IRA

    A savings plan for higher education. Parents and guardians are ...
RELATED FAQS
  1. In which countries do high-income earners pay the most tax?

    It is difficult to identify those countries with the highest tax burdens on high net worth individuals. The most commonly ... Read Full Answer >>
  2. In which US cities do high-income earners pay the most tax?

    There are several different ways that cities tax high-net-worth (HNWIs) individuals. The most direct and obvious method is ... Read Full Answer >>
  3. Under what circumstances would I require private wealth management?

    An investor who is a high-net-worth individual (HNWI) may require private wealth management services. HNWIs have unique financial ... Read Full Answer >>
  4. Which states are the most expensive for high-income earners?

    The most expensive states for high-income earners are California, Hawaii and New York. The tax rates assessed by these states ... Read Full Answer >>
  5. What are the risks involved in a banker's acceptance?

    College savings accounts are excellent ways to encourage saving for future college costs. Contact your investment professional ... Read Full Answer >>
  6. What is continuously compounding interest?

    An interest contract with continuously compounding interest is designed to maximize the total possible interest accumulation ... Read Full Answer >>
Related Articles
  1. Savings

    Don't Forget The Kids: Save For Their Education And Retirement

    Retirement and education financing are the two most important planning items for taxpayers.
  2. Insurance

    Investing In Your Child's Education

    Overwhelmed by increasing tuition costs for your kids? The U.S. government can help.
  3. Savings

    Choosing The Right 529 Education Savings Plan

    Before you fund one of these education-savings vehicles, be sure you know their differences.
  4. Savings

    Stop Procrastinating! Enroll In A College Savings Plan

    The cost of sending your kids to college could be a serious financial burden - unless you get prepared. Now.
  5. Savings

    A 529 Plan Fit For An Ivy League Education

    The Independent 529 plan offers a unique investment for those wanting to send their kids to the best colleges in the U.S.
  6. Options & Futures

    How And When To Switch Your 529 Plan

    Just as with any investment, you should review your plan to make sure it's meeting your needs.
  7. Budgeting

    Pay For A College Education With Retirement Funds

    These savings vehicles may be better than college saving funds for some families.
  8. Professionals

    How to Best Navigate Taxes in Retirement

    Here's a rundown on tax strategies that can help extend the life of a nest egg.
  9. Savings

    5 Things to Look for in a Private Banker

    When putting all your assets into one private banker basket, it pays to proceed with caution.
  10. Taxes

    10 Little Known Ways To Reduce Your 401(k) Taxes

    These clever strategies will help you hold onto your money – so you'll have more available for your retirement.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!