College Savings Plans: 529 Plans and Prepaid Tuition Contracts

A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996. These qualified tuition programs are exempt from creditors. Nearly every state has at least one 529 plan – however, the plans and what they provide may differ from state to state. One important aspect of the plan is the fact that the choice of school is not affected by the state your 529 Plan was created. For instance, consider the scenario where two parents create a plan in California for their minor child. When the child is ready to go to college, he or she can go to schools anywhere in the United States – not just in California. Also, a contributor may elect to take money out of their plan without penalty!

The individual States also have other laws regarding prepaid educational contracts as well. For instance, in Texas — the Texas Education Code governs and retains the same stance that certain prepaid educational contracts are exempt from creditor attack, in addition to 529 Plans.

• Advantage: If you have or intend on having children, you can use one of these educational contracts to protect money that you are saving for their college tuition without the threat of creditors. Your children will be sure to have the opportunity to pursue higher education.

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