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529 plans: A path to paying for college

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Sunday, June 6, 2010

What they are: 529 prepaid tuition or savings plans allow families to make tax-deferred investments -- and reap tax-free earnings.

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How to pick one: Nearly every state offers at least one 529 plan. The District, Virginia and Maryland offer their own 529 plans, with special state tax benefits. Virginia and Maryland also offer prepaid tuition and mandatory fee programs, which require pre-set payments for semesters or years of future tuition and offer less flexibility, but can deliver enormous returns.

How they are run: Some of the plans, including the Virginia and Maryland prepaid tuition programs, are state-run. Others are managed for the state by private companies.

Sizing up area plans:

Maryland Prepaid College Trust: Locks in future college tuition at today's prices. The trust will pay full resident tuition and fees at an in-state public college, or a roughly equivalent sum (whatever Maryland colleges charge 12 years hence) toward tuition and mandatory fees at a private or out-of-state college. There are numerous payment options: during the most recent enrollment period, the family of a current kindergarten student might make 144 monthly payments of $401 each, 12 annual payments of $4,552, or one lump-sum payment of $37,818, to cover four years in a state university in 2022.

Maryland College Investment Plan: A 529 savings plan managed by T. Rowe Price, with the usual tax benefits and many investment options, including age-based portfolios. Can be used toward any eligible higher education expenses.

Virginia Prepaid Education Program (VPEP): Similar to its Maryland counterpart. VPEP lets Virginia families prepay the cost of tomorrow's college tuition and mandatory fees. During the most recent enrollment period, the family of a kindergartener could prepay four years at a Virginia public university with a single payment of $45,972, 60 payments of $922 each or 145 payments of $487 each.

Virginia Education Savings Trust (VEST): A 529 savings program administered by the Virginia College Savings Plan's board. Can be used toward any qualified higher education expenses.

CollegeAmerica: A 529 savings program offered by Virginia with the American Funds, which manages the program. CollegeAmerica is sold by financial advisers.

CollegeWealth is available through two bank partners, BB&T and Union First Market Bank. This Virginia 529 option helps families benefit from the tax-free advantages of 529 accounts with the additional benefit of an FDIC-insured savings account.

DC College Savings Plan: A 529 savings plan managed by Calvert Investments, with a variety of investment options, including age-based portfolios.

Source: State plan documents

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