By Verna Hazen
There are a number of ways to plan for college costs and 529 plans
are among the best choices today. RIT is participating in an
Independent 529 Plan, a prepaid college tuition plan for private
What is a 529 Plan?
A 529 plan is designed to help families set aside funds for future
college costs. The name comes from Section 529 of the Internal
Revenue Code, which specifies the requirements for plan participants
to receive special tax benefits. The current rules are
in effect until 2010, unless Congress votes to extend them.
Everyone is eligible to participate in a 529 plan; there is no
income limit on the tax benefits. Because plan limits are high,
the amount you may invest is substantial. You select the beneficiary,
and you may change beneficiaries later. You also choose when
to use the plan.
What kinds of plans are there?
There are two types of 529 plans; college savings plans and prepaid
tuition plans. Both are excellent choices when planning for
College Savings Plans: Section 529 college savings plans
are tax-exempt college savings plans. When you save in a 529 college
savings plan, your contributions grow tax-deferred. Distributions
are also free from federal tax as long as the money is used
to pay for qualified higher educational expenses, such as tuition,
fees, room and board, and books and supplies.
Most 529 plans offer a wide variety of investment options,
ranging from aggressive to conservative. Some state-sponsored
plans offer state tax benefits in addition to the federal tax
benefits. For example, New York taxpayers can deduct up to
$5,000 of contributions to their “New York’s 529 College Savings Program” on
their state income tax each year.
Prepaid Tuition Plans: Prepaid tuition plans let you lock in
future tuition at current prices. The plans are guaranteed
to increase in value at the same rate as college tuition. Most
prepaid tuition plans are state-sponsored; if a family purchases
shares worth a half a year’s tuition at a state college, these shares will
be worth half a year’s tuition when the beneficiary
enters college. Most offer a better rate of return than bank
What is the Independent 529 Plan?
The Independent 529 Plan is a unique version of a prepaid
tuition plan. It’s the only national prepaid tuition
plan for independent colleges. This plan allows families to
prepay tuition that can be used at any of the more than 240
independent college and university members.
Plus, every member college offers a
tuition discount, so families can actually lock in future
tuition at less than today’s price. Participating colleges
pay all program fees, so 100 percent of contributions go toward
RIT is one of the more than 240 independent colleges
across the country that participate in the Independent
How will a 529 Plan affect eligibility for need-based aid?
Section 529 college savings plans are reported on the
FAFSA (Free Application for Federal Student Aid) as an asset
of the account owner (usually parents), not the beneficiary. Therefore,
the impact on financial aid eligibility is low. Distributions
have no impact on financial aid eligibility.
Effective with legislation passed on Feb. 7, 2006, it
appears that 529 prepaid tuition plans will be treated
the same as 529 college savings plans under student financial
aid rules. Check with your prepaid tuition plan provider
for additional details.
Where do we get more
I always encourage families to use free, reputable sources
of information about financial aid. There is no reason
to pay a consultant fee for information that is readily available
from reputable sources like the ones that follow:
For comprehensive information on most aspects of planning
for college costs see Finaid! The SmartStudent Guide to Financial
For independent information on Section 529 plans see Savingforcollege.com
There is plenty of good information available on the free
portions of the site. You do have to ignore multiple ads
for fee-based services.
For more on New York’s 529 College
Savings Program see www.nysaves.com.
For more on the Independent 529 Plan, see www.independent529.org.
Members of the RIT community share expertise on a variety of subjects