Should You Pre-pay For College?

You can prepay for a college education, and save a little money too.

The cost of education might seem high, but it is a necessary cost in today's world. Those without college educations often face a hard time finding a job today. Jobs you would never think would require a college education, do. For example, there are many cowboy jobs -- you know, riding a horse and doctoring cattle -- that require you have an animal science or ag degree. Firefighters have four year degrees. At the least, many management positions, even in retail, require that you have an associate's degree.

College tuitions are just going up and up every year. Increases are necessary to keep the level of education and boarding up to standard. Education is not cheap and it costs a lot to produce it. You can choose to pay tomorrow's college at today's tuition, tax-free.

Sounds too good to be true, but it isn't. With an Independent 529 plan, you aren't simply working with a state-sponsored savings plan. Independent 529's are offered by private colleges and universities.

You simply deposit up to $165,000 into the plan. In return, you receive tuition vouchers good for use at any of the plan's 255 participating schools and universities. You can use the vouchers between three and 30 years after purchase.

The benefit is that the actual cost of tuition will probably be at least double what it is today when you redeem the vouchers. Think of it as locking-in today's college tuition prices. Basically, you are pre-paying for an education.

The drawback is that the vouchers must be used at participating schools. If your child or grandchild enrolls at a school not on the list, you can get a refund at the rate your money was invested. You can also roll the assets into a state-run 529 plan.

State-sponsored 529 plans put your money into mutual funds or other investments that grow tax-free. You then can use the account to pay for any college tuition in the country.

Tuitions vary by school, so you will have to rely on the plan to let you know how many classes you are owed by the plan. You are also limiting the growth of your money to the rate of tuition increases. While tuitions have reportedly risen by 6% a year, there is no guarantee that they will continue that rate. However, most people agree that college tuition rates will probably never go down. You are basically risk free from losing money here.

Once you have saved for retirement, saving for your children's college educations is important. Do this for them, and you give them a step onto the right path. Research both traditional and independent 529 plans. Decide which is right for your family and use it to your advantage. Start saving as early as you can. It is the perfect answer to "What does she need for her birthday?" After all, they are ready for college before you know it.