By Claire Whittington
Director, Mississippi Prepaid Affordable College Tuition (MPACT) Program
As parenting fears go, starting a college fund is right up there with sending your child to their first day of school or letting them drive a car for the first time.
Saving for college can be scary but that doesn’t mean it has to be overwhelming or frustrating. It’s as easy as picking a plan that best fits your needs and that means choosing one you are comfortable with.
According to CNNMoney there are nearly 4,500 colleges in the United States with an average annual price of $60,000. That’s a little scary but – take a deep breath, not all college and universities come with an overwhelming price tag. According to the College Board, the average tuition and fees per year of an in-state public college is about $8,650 and the average cost of an in-state community college is about $3,100. For families with young children, time is on your side; just make sure you don’t waste it. After all, a third grader is already halfway to college.
All 529 plans offer tax advantages and many offer state tax deductions or credits for residents of the state that runs the plan. A few states offer state tax deductions for any 529 plan investment.
We are going to focus on prepaid plans for this discussion since it is popular in my home state of Mississippi. Prepaid plans are all different. No two are alike. One is an apple, one is an orange, one is a watermelon, one is a mango, etc. Get my point?
So what is a prepaid plan exactly if they are all so different? The basic theme that runs through all prepaid plans is that you are pre-paying for a product that will be used when your little genius goes to college. Some plans only pre-pay tuition, while others give the option to pre-pay for books and dorms.
Why would you choose a prepaid plan over a savings plan?
You don’t have to, you can have both. Ideally you would invest in both so your eggs aren’t all in one basket, especially if your state’s prepaid plan only pays for tuition. Even if you choose to only invest in a prepaid plan, it is still a good option for you.
Prepaid plans are a very conservative and low risk savings vehicle to save for future college expenses. This goes back to picking a plan that is right for you. What is your risk tolerance? What makes you comfortable? If you are a conservative investor, a prepaid plan may be right up your alley.
Above everything else, the most important thing to do before you invest in a prepaid plan is to understand the plan. Know what you are buying so there are no surprises eighteen years from now. So, take a deep breath, and learn more by going online or picking up the phone and calling your state’s prepaid plan office.
Claire Whittington is Director of the Mississippi Prepaid Affordable College Tuition (MPACT) Program and the Mississippi Affordable College Savings (MACS) Program. The Programs have over 30,000 accounts and over $475 million in assets. Whittington currently serves as the Co-Chair of the Prepaid Committee of the College Savings Plans Network.