It’s never too early to start thinking about saving for your child or grandchild’s college education. In fact, saving early is more important than ever, with college tuition inflation averaging 5-7% annually. A 529 plan is one of the most effective tools to save for these rising education costs. Families often ask: Should I choose a prepaid tuition plan or a college savings plan?
Here’s what you need to know to make an informed decision.
What is a 529 Plan?
A 529 plan is a tax-advantaged account designed to help families save for education costs. There are two main types: Prepaid Tuition Plans and College Savings Plans. Both offer federal tax benefits, but they work differently.
Prepaid Tuition Plans
Prepaid 529 plans let you lock in tuition and fees at today’s rate for future attendance at participating colleges. By buying tuition credits now, you secure coverage for tuition at participating schools when your child attends, even if costs increase over time. This protects you from college tuition inflation in the long run.
However, prepaid plans come with a few restrictions:
- Coverage is usually limited to tuition and fees—not housing and books.
- Plans often require state residency and apply only to certain schools.
Prepaid plans work best if you’re confident your child or grandchild will attend an in-state public university, and you value certainty over flexibility.
College Savings Plans
Savings plans offer investment-based growth and broad flexibility. You contribute to an account invested in mutual funds or similar options. Earnings grow tax-deferred, and withdrawals are tax-free for qualified education expenses, including:
- Tuition and fees
- Room and board
- Books, technology, and supplies
- Some K-12 and professional credentialing programs
These plans can be used at most accredited schools nationwide—and even some abroad—making them ideal if you want options.
Prepaid Tuition Plans vs. College Savings Plans: Key Differences
Both 529 plan options have their own benefits and drawbacks. The best 529 plan is the one that aligns with your long-term goals.
Consider a prepaid tuition plan if:
- You are nearly certain your child will attend a participating in-state public university.
- You want to lock in tuition prices now at the current rate to protect against future increases.
- You’re comfortable with fewer investment choices and limited usage.
Consider a college savings plan if:
- You want maximum flexibility in school choice (public/private, in-state/out-of-state).
- You want to cover a broad range of expenses—not just tuition.
- You’re open to investment risk for the chance of higher return and are comfortable changing beneficiaries if needed.
Which 529 Plan Fits Your Family?
Choosing the 529 plan that aligns with your family’s goals can feel overwhelming. Working with an experienced financial advisor provides clarity, confidence, and a strategy designed to maximize your long-term benefits.
Ready to tailor a college-savings strategy to your goals? Contact a member of the Boulay Wealth team to find out how a 529 plan can help build a secure educational future for your family.