By Heather Barthelmes, Michigan Education Trust
April 3, 2017
I remember when I found out I was pregnant with my son thinking about the exciting, yet scary, adventure my husband and I were about to embark on. Would he be one of those babies who never slept? What kinds of activities would he like—would he be artsy like me; would he be as organized as his dad?
When our children are born we do our best to feed them the right foods, teach them their A, B, C’s and prepare them for their future. But, how can we prepare ourselves for that future when there are so many unknowns?
Many parents say they want their children to go to college, but many of those parents have no idea how to plan for it. How do you know what kind of college your child will want to attend? How do you know how much that school will cost? Luckily there are savings plans to help you prepare for these uncertainties. Most people who have heard about 529 plans have heard about the savings plans, but there is another type of 529 plan out there—prepaid plans. These plans allow parents, grandparents and others a way to purchase college tuition based on today’s rates which is then paid out at the future cost when the child is in college. Read “What is a 529 Plan?” for more information on the two types.
With my state’s 529 prepaid plan, the Michigan Education Trust (MET), tuition can be purchased by the semester or by the credit hour. When the child attends a Michigan public college or university MET will pay for the number of credits on the contract regardless of what those credits cost when the child attends college. For example, if I purchased 30 credits for $8,000 when my son was in kindergarten and when he goes to college those 30 credits cost $16,000 at a Michigan public college or university, MET will pay the full $16,000 to the school. In addition, if he decides to go to a private school or out-of-state school I can direct the then value (calculated under MET rules) of my account to those schools. That amount is also based on whatever college costs at Michigan public colleges and universities in the future when he goes to college.
The other unknown is whether my son is even going to want to attend college. The nice thing is that I won’t lose my money. I can have the value of the contract refunded and transferred to another 529 plan or we could transfer those credits within MET to another family member—even his own children (someday). I can also take a nonqualified withdrawal but would be subject to federal and state taxes and a federal 10% tax penalty.
Currently 11 states and a group of private colleges offer prepaid plans. (See which those are using CSPN’s 529 plan comparison tool.) But for someone like me who is too busy worrying about what to have for dinner this week or how I am going to have the time to finish all the laundry, a plan like MET is perfect. I don’t have to worry about what the price of college does or what investments I should choose. I know that I have my credits already purchased and if my son decides to go to college we are all set!
About the author:
Heather Barthelmes is an analyst for the Michigan Education Trust (MET). Since 1988, more than 105,000 MET contracts have been purchased, and today more than 12,300 students are using their MET benefits at Michigan public colleges and universities, private colleges and out-of-state institutions.