The Private College 529 Plan: A Unique Way to Save and Pay for College
By Joe Messinger, CFP®
June 1, 2017
What if you could lock in today’s tuition for a child who won’t actually go away to college for many years? What if you could save money to pay for one of 300 private colleges and universities? If sending your child to a private college and paying a lower price is important to you, the Private College 529 Plan is something to consider.
The Private College 529 Plan is NOT an investment plan. It is a prepaid tuition program. You purchase tuition certificates at today’s prices, and they are used at some point in the future at one of the included institutions.
What are tuition certificates? Your purchases are buying tuition at today’s prices. Purchases are accumulated by program year, July 1 through June 30.
An example works best to demonstrate how they work:
Let’s say “Creative College” costs $40,000 this year and “Unique University” costs $30,000 this year. If you invest $10,000 this year, you have earned 1/4 of a future year at Creative and 1/3 of a future year at Unique. If you invest $5,000 this year, you have earned 1/8 of a future year at Creative and 1/6 of a future year at Unique. The percentage of a year will vary by college because their costs are different.
Some things to consider:
- Participating in the program does not guarantee admission to any of these schools, and it does not affect the admissions process.
- This 529 plan is the only one not run by a state. The colleges and universities own the plan–not the state.
- You do not need to choose a school when you open an account.
- Account owners do not pay any fees. The institutions pay all operating costs for the plan.
- You don’t have to be the parent of the beneficiary to open a plan for that person. Anyone can open a plan on behalf of a beneficiary.
- Certificates must be held for 36 months before they can be redeemed.
- Certificates can be used to pay for tuition and mandatory fees. Room and board cannot be paid for with certificates.
- If your student receives a scholarship, the account owner can transfer to another beneficiary or receive a refund up to the amount of the scholarship without a penalty.
- Private College 529 plan assets are included in the parent’s assets when calculating financial aid.
- Plans can be opened with as little as $25 per month and up to the equivalent of five years of tuition at the most expensive participating college per year.
- You can invite others like grandparents to make contributions to the plan. Contributions to the Private College 529 are subject to gift tax annual limitations.
- Money invested never loses value.
If your student chooses to go to a school not included in the Private College 529, you can transfer the fund to another beneficiary, roll it over to a state sponsored 529 plan, or receive a refund. Refunds are “adjusted based on the net performance of the Program Trust, subject to a maximum increase of 2% per year, and a maximum loss of 2% per year.” Refunds not used for higher education is subject to a 10% tax penalty on the earnings.
While not an ideal choice for everyone, the Private College 529 Plan is another tool in the paying for college toolbox to consider. Parents may want to take part if they place a high value on a private college education (maybe their alma mater?) or they are concerned about the rapidly rising cost of tuition.