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529 Guaranteed College Savings Plan Guarantees Return on Investment

A few states have started a movement to meld 529 prepaid tuition plans and 529 savings plans into a hybrid: the guaranteed savings plan. Guaranteed savings plans follow all the rules and requirements of Section 529 of the Internal Revenue Code and qualify for the same preferred tax treatment as prepaid tuition plans and savings plans.

The first states to offers these plans (Colorado, Ohio, Pennsylvania, Tennessee, and Washington) have a slightly different take on the same theme: a guaranteed return on your investment, based either on current tuition rates in that state or a stated interest rate, recalculated each year.

For federal financial aid purposes, plan assets are being counted as the account owner’s assets (not as the student’s), and distributions from plans to pay qualified higher educational costs aren’t considered a financial resource of the student.

Contribution limits in these plans are generally the same as for savings plans administered by those states (except for Washington State, whose plan appears to limit contribution amounts to four-year tuition at an in-state public university — much more in keeping with a prepaid tuition plan limit).

The guaranteed savings plan assures low risk and reasonable (although not spectacular) growth of your savings while not tying you to the more limited contribution amounts of prepaid tuition plans.

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