<p>For anyone who has some money saved for college and whose kid has been accepted to a private school, it is worth checking out the Independent 529 Plan, and finding out if your school is one of 275 schools on their list. </p>
<p>My son was just accepted ED at WUSTL, which is part of the plan. When I read through the brochure of the financing options that WUSTL sent me, I was struck by how inferior the prepaid options were to the I529 Plan, so thought I would share some info.</p>
<p>With the I529 Plan, you can effectively pre-pay tuition at the current year's rate, and also get a 0.5 to 1% discount per year on the tuition rate. This must be done at least 36 months in advance of when the tuition certificates are redeemed. </p>
<p>The biggest disadvantage of the I529 Plan is that you just can't know in advance if your kid will end up attending a school that is part of the plan. But for those with ED acceptances, now you know. It is too late to kick in money for the first 2.5 years of school. But if you join now, you can pre-pay the second semester junior year and senior year tuition now, without having to worry about the tuition inflation rate, and with an addition 0.5% discount per year (e.g. 1.5% over the 3 years). </p>
<p>Sorry if I sound like a sales person - I'm not associated with them, and am just a parent and customer. I think you can transfer money into the I529 Plan from other regular 529 plans.</p>
<p>^^I will add to Sacci’s sales pitch; if you do go to a school that is not a member school on their plan, they will convert to a regular 529 and guarantee you a certain % return (last year it was 2% and outperformed the regular 529 that we own elsewhere)…</p>
<p>and, yes, you can transfer $ from a regular 529 plan to the I529…</p>
<p>Our daughter is a junior in HS; we took the plunge and are taking the risk that she will attend one of the 275 schools…</p>
<p>one caveat: if you attend a school where they will allow you to prepay 4 years upfront to lock in your tuition the I529 may not make sense; you need to consult your financial professional in that case</p>
<p>This is interesting and seems well worth checking into. However, the math in the online calculator isn’t working out. I chose a college that my son might attend, entered that college’s current tuition and estimated how much of a year that would purchase if my son enrolled in 2009. I was assuming it would be something over 1, given the statement that the cost would be discounted between 1/2 and 1 percent. The result was .987 years, meaning (I think) that if I prepaid the entire 2009 tuition amount into an I529, it would buy me less than a year’s tuition. A similar result was seen with the 2010 tuition. For 2013 (son’s senior year), a contribution of 100% of this year’s tuition would result in the equivalent of 1.027 years of tuition paid. </p>
<p>Now I realize that tuition is likely to rise anywhere between 2-5%/year, and the initial investment will most likely have a positive return (although capped at 2%/year) over 3 years, so there is still a lot of money to be saved with this kind of plan. It’s probably worth a call to the college of interest in order to find out their exact discount percent and ask whether the online calculator is accurate.</p>
<p>I haven’t used the online calculator in a couple of years, but is it possible that it assumes you have to keep it in 3 years for it to hit “positive”?; we were told that when we initially entered the program</p>
<p>btw, the colleges don’t know their discount percent; I529 sets it</p>
<p>This is an interesting idea, so thanks for posting. The FAQ says the federal govt has decided to treat $ in an I529 plan as an asset of the parent instead of the student. This is crucial when it comes to need-based financial aid. I wonder if this applies only to FAFSA and federal aid, or to Profile EFC calculations too? I can call the college, but would also like to hear if anyone has first-hand experience with how Profile treats the asset.</p>
<p>vballmom - I believe there is a minimum number of years you must be invested to earn that tuition discount. You can’t invest this year for next year’s tuition</p>
<p>The calculator is pretty simple: select the college, enter the amount you want to deposit into an I529 (I entered the full tuition for 2009) and enter the year you want to pay for (I entered 2009). Should result in a discount of .5 to 1%, based on the FAQs on the site. Perhaps rodney’s point is correct, the calculator might adjust for the fact that the funds haven’t been on deposit for the required 36 months.</p>
<p>According to the site, each college sets its own “certificate discount” rate which is why I thought the college would be able to answer that question.</p>
<p>eta
</p>
<p>Yes of course, I was just interested in seeing if the math worked as expected.</p>
<p>Also, as far as Profile is concerned, colleges that use Profile are free to “assess” assets however they want in their financial aid formulas. They can also ask about sibling assets and use that in their assessment of need. The FAFSA rule is that 529s are always assessed at the parent rate of 5.6%; there’s no corresponding “rule” for Profile. Some colleges will tell you; most won’t. (I just happened to be reading on the Princeton site that they assess student investments at the rate of 5%, unlike FAFSA which uses a 20% rate).</p>
<p>Try the calculator with this year’s tuition and 2013 as the start year, and you should see a discount. Or what demonstrated it better for me was the second calculator showing “how much do I need to save”.</p>
<p>For 2013 (son’s senior year), a contribution of 100% of this year’s tuition would result in the equivalent of 1.027 years of tuition paid. </p>
<p>The math to be done: see if that’s equivalent to a 1% discount of 2009’s tuition plus a 2%/year compounded increase in the value of the original funds invested (best case scenario), and compare that to a potential 3 or 4% annual increase in tuition from 2009 to 2013. Then compare that to the opportunity cost of not investing that same $ amount in a different (perhaps taxable) long-term investment that might yield 5-8% per year for 3 years.</p>
<p>I’m guessing it’s still a good deal, but I’ve got other work I need to focus on at the moment ;)</p>
<p>I’m terrible at math, but I think I get what you’re saying. Your example shows a discount of .027 (or 2.7%), so I guess that’s .9% per year discount from tuition, since you have to hold it 3 years. Am I right? The big variables then are what you could earn elsewhere, after tax, and what the tuition increases will be. Although many private colleges were very good about keeping tuition increases to a minimum this past year (around 4% would be considered a small increase, from what I’ve read). But that’s not to say they’ll be able to keep that up. This could be a very good deal considering what my other investments seem to be yielding.</p>